US gold futures for December delivery climbed 1 percent to $1,291.80 per ounce.
Gold extended gains after data showed US producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.
The market was waiting for US consumer inflation data on Friday that would offer more clues about future Fed decisions. The $1,279 area is a key technical level, representing a downtrend that has been in force since mid-2016 when gold surged to a two-year peak of $1,374.91.
"If we break above this downtrend, then we potentially open up the region up to $1,300, the recent highs we saw in April and June," Butler said.
Speculative positions in U.S. gold futures remain subdued, said UBS strategist Joni Teves.
"Subdued participation this year and lean positioning suggests that market participants would have to play catch-up on a break higher," she said in a note.
"At least in this segment, investors apparently remain reluctant to seek gold's safe haven. The gold market shows various signs of ambivalence and we believe that this pattern will continue into the foreseeable future," Norbert Rucker, head of macro & commodity research at Julius Baer, said in a note.
In other precious metals, silver surged 1.7 pe rcent to $17.20 an ounce after hitting $17.24, its highest since June 14. Platinum gained 1.1 per cent to $982.40 per ounce after touching $983.60, the highest since April 18.
Palladium climbed 1.1 per cent to $900.85 per ounce.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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