On Wednesday, gold held on to overnight gains and was trading near its highest in a week. It was supported by a softer dollar, but rise in bond yields and uncertainty over the timing of a possible US rate hike kept the rally in check.

Spot gold was stable at $1,193.60 an ounce by 0328 GMT, which was just a low from a one-week top of $1,196.60 reached on Tuesday.

The previous session's nearly 1% gain in prices was triggered by safe-haven bids as the dollar fell and stocks took a hit from volatility in global bond markets.

On Tuesday, German bond yields have climbed on optimism that inflation may have bottomed in the euro zone, lifting demand for the euro. Before steadying, US 10-year Treasury yields have hit six-month highs.

HSBC analyst James Steel, said, "The question facing gold is will bullion derive more upwards thrust from a weaker dollar or will rising yields sap and possibly reverse the rally?

Steel said that it appears that the currency markets were more influential in aiding bullion, at least near term, although gold was running into resistance at the $1,200 an ounce psychological level.

Furthermore, the dollar was on the defensive ahead of US retail sales data due later in the day.

US data is under close watch by the financial markets to gauge the strength of the economy and how that would be impacting the Federal Reserve's interest rate policy.

Strong data could prompt an early rate hike that will boost the greenback and hurt non-interest-yielding gold.

On Tuesday, Fed officials provided no clarity on when the US central bank would make such a move.

A top Fed policymaker said that the ability of Fed to delay its initial interest rate hike to head off economic shocks is now 'more limited' as compared to its ability to quickly tighten monetary policy in response to positive surprises.