Gold retreated from earlier four-month highs on Wednesday as the dollar firmed, but was still seen benefitting from uncertainty over China's economic policies and worries about the U.S. recovery in the short term.
The metal has risen around 11 percent since the beginning of the year as investors have poured back in on worries about economic conditions in the United States and in China.
"The market is trying to firm, slowly breaking important resistance levels, as the dollar continues to be broadly under pressure," MKS SA head of trading Afshin Nabavi said.
"We are seeing some profit-taking but overall we should remain between $1,330 and $1,350 for now."
Spot gold touched its highest since Oct. 30 at$1,345.35 an ounce, before falling 0.6 percent at $1,332.60 by 1421 GMT.
U.S. gold futures for April delivery were down 0.6 percent to $1,334.10 an ounce, having earlier hit a four-month high of $1,345.60.
"(Gold's gains are) not really a runaway, we are just grinding higher and you could argue that the latest entrants to the market are looking for additional gains and if they don't get that they might be quick to pull the trigger again to get out," Saxo Bank senior manager Ole Hansen said.
"It looks like most people are not seeing the upside going much above $1,350/1,400."
U.S. data on Tuesday showed that home price gains slowed in December, underscoring a loss of momentum in the housing recovery, while February consumer confidence fell short of expectations.
European equities fell on Wednesday, tracking Asia, while the dollar rose 0.2 percent against a basket of currencies, adding pressure on the gold price.
Wider markets are cautious ahead of Thursday's testimony from Federal Reserve Chair Janet Yellen, in which she is bound to face questions on the recent spate of soft U.S. economic news and what it might mean for policy.
FUNDS HOLDINGS UP
An increase in holdings of bullion-backed exchange-traded funds (ETFs) highlights renewed investor interest in gold, but physical buyers in key consumers such as India and China could be waiting for a price correction.
SPDR Gold Trust, the world's largest gold-backed ETF, said its holdings rose 0.26 percent to 803.70 tonnes on Tuesday from 801.61 tonnes on Monday.
Hong Kong's net gold exports to China fell 5.4 percent to 89.745 tonnes in January from 94.847 tonnes in December, reflecting a slowdown in demand from record levels in 2013.
"China isn't buying much, which is partly because of the weakening premiums," said a physical gold dealer in Hong Kong, referring to the price difference between 99.99 percent purity gold on the Shanghai Gold Exchange and cash gold .
High Shanghai premiums over spot gold usually encourage importers to bring bullion into China, which overtook India as the world's biggest gold consumer in 2013.
Silver, which hit its highest since Oct. 31 at $22.16 an ounce on Monday, fell 1.2 percent to $21.58 an ounce. Platinum dropped 0.3 percent to $1,429.24 an ounce and palladium was down 0.3 percent at $730.00 an ounce.