NEW YORK/LONDON (Reuters) - Gold prices edged higher on Thursday as the dollar declined and world shares slipped following renewed worries about China's economy.
The dollar index was down 0.3 percent, making gold more affordable to buyers using other currencies.
"Gold prices are having difficulty moving higher, but are also reluctant to move lower. They are looking for a new driver," said ABN AMRO commodity strategist Georgette Boele.
Spot gold XAU= rose 0.3 percent at $1,258.55 an ounce by 3:17 p.m. EDT (1917 GMT), while U.S. gold futures settled up 0.3 percent at $1,257.60.
A trader said some investors switched to gold as world stock markets stumbled to three-week lows following September trade data from China, which revived concern about the world's second-biggest economy. [MKTS/GLOB]
"There is a lot of buying on the physical side in Asia, mainly from China and buying from exchange-traded funds after recent dips," said a precious metals trader with a bank based in China.
Bullion prices initially dipped after strong U.S. jobless data boosted the likelihood of an interest rate rise before the end of the year, potentially paving the way for the Fed to hike rates in December.
"There's a position risk with overall positions massively long, enormous, and people may ... give up on the idea that the price could go higher," said ABN's Boele, pointing to U.S. retail sales data due on Friday as a potential trigger.
Philadelphia Federal Reserve President Patrick Harker, who does not have a vote on monetary policy this year but will in 2017, said the Fed should raise rates once by the end of this year and at least twice in 2017, given that the U.S. economy is doing well.
Since gold pays no interest, the precious metal is highly sensitive to increases in U.S. interest rates, which would also typically strengthen the dollar in which gold is priced.
"Gold is on a road to nowhere. While we still think there is small amount of upside for gold through year-end ... we remain generally bearish into 2017," said RBC Capital Markets in a note, reiterating its fourth-quarter forecast of $1,278.
"Whether or not the Fed raises rates in 2016, we think that the market will continue to price in a healthy probability for it."
Among other precious metals, silver rose 0.4 percent at $17.52 an ounce, while platinum fell 0.7 percent at $935.45, after falling to a 7-1/2-month low at $925.65.
Palladium slipped 1.5 percent at $639.30 after touching $633.98, its weakest since July 18.
Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; editing by Alexandra Hudson and Tom Brown