Picture used for illustrative purpose. File

Gold prices retreated further on Thursday, adding to its sharp drop in the previous session, after its safe-haven appeal was dented by a stronger US dollar and an uptick in risk appetite following economic data that bettered expectations.

Spot gold was down 0.3% to $1,937.54 per ounce by 0535 GMT, after falling 1.4% on Wednesday in its biggest one-day drop since Aug. 19.

US gold futures were steady at $1,945.40.

"Gold is tracking inversely the moves in the dollar... and part of the reason gold has not capitalised as much after Jackson Hole is risk appetite seems strong," said DailyFx currency strategist Ilya Spivak, referring to the annual central bankers' conference.

"Although there is positive growth, the overall economy is still very very weak in absolute terms and central banks are expected to remain dovish, which should be supportive for gold."

The dollar index rose for a third straight session against its rivals, making gold expensive for holders of other currencies. 

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Data showing a sustained recovery in China's services sector and the prospect of additional US stimulus whetted risk appetite.

The US Federal Reserve, in its "Beige Book" report, highlighted that US business activity and employment ticked up through late-August, but economic growth was generally sluggish as COVID-19 hotspots hampered reopening.

Gold has gained about 28% so far this year, helped by ultra-loose monetary policy adopted by major central banks to mitigate the economic damage caused by the COVID-19 outbreak.

Investors now await the initial weekly US jobless claims report due later in the day, as well as US payroll figures on Friday, for future direction.

Spot gold may retest a support at $1,936 per ounce, with a good chance of breaking below this level and falling into the $1,906-$1,923 range, said Reuters technical analyst Wang Tao.

Elsewhere, silver dropped 0.9% to $27.25 per ounce, platinum was steady at $905.22, and palladium eased 0.1% to $2,246.53.

Reuters