Gold prices eased on Thursday as the US dollar's rise spurred profit-taking on bullion's jump to a two-week high the previous day when US consumer price data stoked concerns about rising inflation.
Optimism about economic recovery prospects drove stocks higher, encouraging investors to take more risks and weighing on the US dollar, while inflation worries returned after the US price data came in stronger than expected.
Gold investors continued to take cues from the US dollar, as a rise in the currency reduces bullion's appeal as an alternative to US currency and assets, but emerging inflation concerns are helping to improve gold's technical charts, traders said.
As the market approached key resistance of $US950, the rise in the dollar prompted investors to take profits, said Louis Lok, a senior dealer at Bank of China in Hong Kong.
The whole situation "is related to the US dollar, and investors are taking profits ahead of important resistance," he said.
"But the market is finding a new excuse to buy gold as a hedge against inflation fears after the US prices data. Any dip will be a good opportunity to buy," he said.
The break of the 20-day moving average around $US927-$US930 paves the way for the market to test $US950, a level it failed to sustain when players tried to establish a floor after prices had been steadily falling from near $US990 in early June, traders said.
"The market broke the resistance that stood at $US927-$US928, and that has encouraged fresh buying," Lok said.
Spot gold eased 0.2 per cent to $US936.40 per ounce in Asian trade, compared with New York's notional close of $US938.45 on Wednesday, when it rose to near $US942.
US gold futures for August delivery fell 0.3 per cent to $936.70, from $US939.40 an ounce on the COMEX division of the New York Mercantile Exchange. The August contract rose to $US942.30 on Wednesday, its highest since July 1.
Economic optimism was reinforced on Thursday as China's second-quarter gross domestic product rose 7.9 per cent against the previous year, beating expectations, while its first-half GDP rose 7.1 per cent against a year earlier.
This followed US manufacturing data which suggested the recession is abating, and minutes from the Federal Reserve's most recent policy-setting meeting that showed officials saw the US contraction was slowing.
Inflation worries emerged along with the economic data, as US consumer prices rose at a slightly faster-than-expected 0.7 per cent pace in June.
Earlier this week, data showed US producer prices soared by 1.8 per cent, twice as much as expected, in June for the steepest gain since November.
Traders expected selling by major Asian players such as Vietnam to cap prices while investment flows will likely remain slow.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings were unchanged at 1,094.54 tonnes as of July 15, after falling 1.4 per cent the day before, its largest drop in three months.
