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Earlier this week, gold had climbed to $1,303.60, its highest since January 2015, after the dollar slumped against the yen.

"The difficulty gold is experiencing in staying above $1,300 does not necessarily mean the bull rally is ending. But the rally may be tired and in need of consolidation. This can trigger profit-taking," said HSBC analyst James Steel.

“Even though gold has retraced slightly, I am still bullish for this week,” said Raymond Mok, head of foreign exchange and bullion development at Sucden Financial (HK) Ltd. “A weaker dollar and lower expectation of a rate hike” will be supportive of gold, he said.

Gold prices have gained 21 percent since the start of the year on the outlook that the Fed has slowed its expected pace of rate increases. Bullion is sensitive to rising interest rates, which lift the opportunity cost of holding non-yielding bullion.

Investors see just a 12 percent chance of a rate-rise next month.

Market players are also focusing on Friday's U.S. nonfarm payrolls report. The consensus forecast is that the data will show jobs growth of 200,000 last month, following an increase of 215,000 in March, the unemployment rate is forecast to hold steady at 5.0%, while average hourly earnings are expected to rise 0.3% after gaining 0.3% a month earlier.

An upbeat employment report would help support the case for the Federal Reserve to gradually tighten monetary policy this year.

Reference: Bloomberg, Reuters, Invseting