Gold falls from near 3-week high on stronger dollar

Gold slipped on Wednesday as a stronger dollar prevented the metal from holding on to sharp overnight gains that took it to a near three-week high. The dollar gained against a basket of major currencies on Wednesday, with the yen sliding to a fresh seven-year low against the greenback.

In quiet trade, spot gold was down 0.3 percent to $1,193.80 an ounce by 0736 GMT. The metal jumped to a near three-week high of $1,204.70 on Tuesday and closed up about 1 percent.

"It felt like another short-covering rally as we have not been able to hold above $1,200," said a precious metals trader in Singapore. "The dollar is still the major factor impacting prices."

The dollar had fallen in the previous session, as a better than expected survey of German sentiment boosted the euro.

But the greenback benefited on Wednesday from weakness in the yen, which is on the backfoot after the Japanese economy unexpectedly shrank for a second consecutive quarter, and Prime Minister Shinzo Abe postponed an unpopular sales tax rise and called for early elections.

The Bank of Japan kept monetary policy unchanged on Wednesday.

After the Japanese central bank's last meeting on Oct. 31, when it announced a surprise stimulus expansion, gold saw a huge sell-off that took it to 2010 lows.

Bullion investors were also awaiting US data on housing starts to gauge the strength of the economic recovery, and minutes of the Federal Reserve's latest policy meeting.

Traders will be looking for clues on when the Fed will raise rates as any rate hike could hurt gold, a non-interest-bearing asset.

Declines in gold were kept in check by news of central bank purchases. Russia's central bank has bought around 150 tonnes of gold to add to its reserves so far this year, the bank's Governor Elvira Nabiullina said on Tuesday.

Expectations are also building up regarding possible purchases by Switzerland. A referendum is scheduled for Nov 30 for a proposal that aims to ban the Swiss central bank from offloading its reserves and oblige it to hold at least 20 percent of its assets in gold.