Gold rose on Wednesday as strong Chinese economic data dented the dollar and drove some bets for better physical demand from the top bullion consumer, but the risk of elevated U.S. interest rates capped gains.
Spot gold was up 0.3% to $1,833.19 per ounce, as of 1056 GMT, after hitting a two-month low in the previous session. U.S. gold futures rose 0.2% to $1,839.30.
After rising nearly 3% in February, the dollar index inched 0.4% lower, making bullion cheaper for overseas buyers.
"The market is cautiously optimistic for a Chinese economic recovery following strong data which has put the dollar rally into reverse," independent analyst Ross Norman said, adding that it was in turn boosting gold and risk-on assets.
China's manufacturing activity expanded at the fastest pace in more than a decade in February. Physical gold demand in the key hub has already picked up this year as COVID-19 restrictions were eased.
Although traditionally considered an inflation hedge, higher interest rates to rein in consumer prices dim appetite for bullion since it pays no interest.
Gold registered its worst month since June 2021 in February after a slew of U.S. data pointed to a resilient economy and a tight labour market, sparkling fears that the Federal Reserve would deliver more rate hikes to curb inflation.
Traders expect the Fed's target rate to peak at 5.423% in September, from the current 4.50%-4.75% range.
Among other precious metals, spot silver added 0.3% to $20.98 per ounce and palladium climbed 0.2% to $1,419.52.
Platinum gained 0.3% to $955.52 after earlier scaling a more than two-week high at $966.46.
