Gold eased on Friday, but stayed on course for a third weekly gain, as wariness over the U.S. Federal Reserve's message at next week's monetary policy meeting pressed the dollar down.
The dollar slipped broadly against a basket of major currencies, keeping a floor under bullion, after a Wall Street Journal report suggested the central bank will not be raising rates any time soon.
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Bullion has gained almost 9 percent in three weeks after the Federal Reserve assured financial markets it would only start phasing out its stimulus when it was sure the U.S. economy was strong enough to stand on its own.
Spot gold was down 0.3 percent on the day at $1,329.46 per ounce as buyers cashed in on the day's $1,340 peak - around $150 up from the three-year low hit on June 28.
While gold has adopted a slightly less bearish tone in the wake of extraordinary losses this year, analysts were still sceptical on the extent of current gains.
"I don't really see how gold can go much higher," Macquarie analyst Matthew Turner said. "After all the shenanigans of the last few weeks, we know that tapering at some point is clearly still the policy," he said.
Bullion has lost a fifth of its value this year as investors feared recovery in the United States might prompt the Fed to scale back its $85 billion monthly bond purchases. Outflows from gold exchange-traded funds (ETFs) have also weighed.
Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.3 percent to 927.36 tonnes on Thursday - the lowest in four years.
"The fundamentals for buying gold are still there - loose monetary policy, concerns over the Middle East and Europe, and (economic) data from the U.S. and China not being as positive as expected," said Danny Laidler, head of ETF Securities' Australia and New Zealand business, adding that outflows from the firm's gold-backed ETF had slowed.
Physical demand in China has been key to supporting gold prices this year amid the exit from ETFs.
Data from the Shanghai Gold Exchange shows that physical deliveries have totalled 1,198.4 tonnes so far this year. The exchange delivered 1,140 tonnes in all of 2012.
China's gold demand could hit a record 1,000 tonnes this year, the World Gold Council said on Thursday, which means it would overtake India as the world's biggest bullion consumer.
India is seeing a slowdown in demand as the government tightens rules to curb gold imports and tame a record trade deficit. Premiums in India jumped to $20 an ounce over London spot prices on Thursday due to short supplies.
Premiums in other parts of Asia remained stable from last week.. In other metals, silver lost 0.7 percent to $20.05 per ounce, platinum was down 1.4 percent at $1,426.99 while palladium shed 0.4 percent to $734. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Jeff Coelho)