Gold inched lower on Friday but was headed for its biggest weekly rise in more than a month, following a decision by the European Central Bank to keep rates unchanged despite signs of stabilisation in the battered economy.
Japan's gold market jumped into the spotlight as benchmark Tokyo gold futures hit a record high of 4,820 yen a gram after the yen dropped to a 2-1/2-year low against the dollar on expectations of more monetary easing by the Bank of Japan.
Spot gold eased 0.1 percent to $1,672.44 an ounce by 0725 GMT, after rising 1 percent in the previous session when it tracked the euro rally after the ECB kept rates unchanged and said the euro zone economy would recover later in 2013.
Bullion was on track for a 1-percent weekly rise, after falling for five of the past six weeks.
U.S. gold inched down 0.3 percent to $1,672.80.
"The record-high gold prices in yen have triggered some liquidation from Japanese customers, which is putting pressure on the market," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
Gold is likely to test the $1,700 level, and will find solid support at $1,660, around the 200-day moving average that it breached on Thursday.
Buying of physical gold from China continued to underpin market sentiment, as purchases have picked up before the Lunar New Year, when sales of jewellery, bars and coins increase.
China, which is vying with India to be the world's top gold consumer, reported annual consumer inflation accelerated to a seven-month high in December. High inflation has driven gold buying in the past.
Technical analysis suggested that spot gold could retrace to $1,666 an ounce during the day before rising towards $1,691, said Reuters market analyst Wang Tao.
The dollar index inched up, after dropping nearly 1 percent in the previous session after the ECB decision fuelled the euro's 1.6-percent rally, its strongest one-day rise in more than five months.
A stronger greenback puts pressure on dollar-priced commodities by making them more expensive for buyers holding other currencies.
Platinum and palladium held up better than gold and silver, even after posting impressive gains in the previous session, as expectations of a recovering global economy continued to drive investors to metals with industrial applications.
More Americans filed new claims for unemployment benefits last week, but details of the report suggested the jobs market continued to grow at a moderate pace. Other data indicated the economy remained on a steady growth path, with sales at wholesalers rising by the most in more than 1-1/2 years in November.
Spain's first debt auction of the year attracted strong bids, sending its benchmark bond yields to 10-month lows on Thursday, as appetite for high-yielding assets improved.
Spot platinum rose half a percent to $1,630.90, on course for a 4.7-percent weekly rise in its second week of climbs, leading the weekly performance of precious metals.
Spot palladium inched up 0.2 percent to $698, headed for a 1.7 percent weekly gain.