Gold edged up on Wednesday, but was still near a four-month low hit in the previous session as the dollar and U.S. bond yields rose, while investors awaited U.S. economic data and easing measures from the European Central Bank.
Markets focused on U.S. private hiring data later on Wednesday and the non-farm payrolls report on Friday to gauge economic strength.
Spot gold rose 0.1 percent to $1,245.90 an ounce by 0954 GMT. The metal hit a four-month low of $1,240.61 on Tuesday, before closing flat, snapping a five-day losing streak.
U.S. gold futures for June delivery were up $1.50 an ounce at $1,246.00.
The dollar was up 0.1 percent against a basket of currencies, benefiting from rising U.S. borrowing costs. The U.S. 10-year Treasury yields steadied above 2.57 percent, having climbed almost 20 basis points over the past three sessions.
Returns on U.S. bonds are closely watched by the gold market, given that the metal pays no interest.
"The stronger data in the U.S. has already improved markets' sentiment," ABN Amro analyst Georgette Boele said.
"In general, I expect weaker prices for gold, if data continues to be better on the U.S. side and triggers higher U.S. yields, gold will move lower."
Employers probably added 218,000 jobs to their payrolls last month, according to a Reuters survey of economists. While that would be step down from April's robust 288,000 job gain, it would still be above the average for the preceding six months.
In other markets, the euro sagged 0.2 percent and European shares fell before Thursday's ECB meeting. The central bank is widely expected to cut interest rates, including lowering the rate banks are charged for depositing funds with the central bank to below zero.
PHYSICAL DEMAND LACKING
As a gauge of investor interest, holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 1.8 tonnes to 787.08 tonnes on Tuesday.
The inflow could be supportive in the near term, but the fund's overall holdings are still near 5-year lows, indicating bearish sentiment, analysts said.
"A resumption of (gold) downward trend has seen net holdings in gold ETFs decline by 39 metric tonnes in the year-to-date," ANZ said in a note.
"We expect steady net redemptions of ETF gold to become the norm for at least the next 12 months, though the threat of geo-political risk remains ever present."
The bank sees gold ending the year at $1,180 an ounce, down from a previous forecast of $1,450 an ounce, as China