Gold rose for a third day on Wednesday ahead of U.S. inflation data due later in the day, which investors are awaiting for clues on the outlook for U.S. monetary policy.
The metal firmed in early trade as the dollar slid to a 15-month low against the yen, boosting interest in assets priced in the U.S. currency, and managed to maintain those gains even as the greenback steadied.
Spot gold was up 0.2 percent at $1,331.74 an ounce at 1240 GMT, while U.S. gold futures for April delivery were up $3.70 an ounce at $1,334.10.
The U.S. inflation report for January, due for release at 1330 GMT, could raise expectations for faster U.S. interest rate hikes if it indicates price pressures are building.
"U.S. monetary policy is still the main driver for the yellow metal," ActivTrades' chief analyst Carlo Alberto De Casa said. "Any jump in U.S. inflation could generate selling on gold, as investors will probably see further raises on the horizon."
While inflation can boost demand for bullion as a safe store of value, the positive impact of that may be offset by a rise in interest rates, which makes non-yielding gold less attractive.
European stocks rose ahead of the report, while the dollar steadied against a basket of currencies after earlier losses.
Gold fell last week as investors selling out of sliding stock markets opted for the dollar as an alternative investment.
The U.S. unit has since given up two-thirds of its gains for the month. The world's largest gold-backed exchange-traded fund, SPDR Gold Shares, reported an inflow of nearly 3 tonnes on Tuesday, following the biggest weekly fall in its holdings since July 30.
On the physical side of the market, gold demand in major consumer China was weak in the run-up to the New Year holiday that will begin on Thursday, dealers said.