Gold prices fell on Thursday, after the dollar firmed, and as investors squared positions ahead of US inflation data this week that could set the tone for the Federal Reserve's strategy on interest rate hikes.

Spot gold fell 0.4% to $1,774.80 per ounce by 1318 GMT, and US gold futures were down 0.6% to $1,775.40.

The dollar index gained 0.3%, dimming gold's appeal for overseas buyers.

Gold has traded in the range of roughly $1,760 to $1,790 an ounce, after last month's fall below the key $1,800 mark, as investors attempted to gauge the pace at which the US central bank would taper its stimulus.

Friday's US Consumer Price Index (CPI) report will be followed by the Fed's policy meeting on Dec. 14-15.

International: Gold climbs as new virus variant jolts investors

If the Fed "enters tapering earlier than they announced at the last meeting, then of course the probability of rate hikes is increasing and that would be a negative factor (for gold)," said Quantitative Commodity Research analyst Peter Fertig.

Reduced stimulus and interest rate hikes tend to push government bond yields up, raising non-yielding bullion's opportunity cost.

"However, gold could see fresh bids if markets become fearful once more about pandemic-related developments or a ramp-up in geopolitical tensions between major economies," said Han Tan, chief market analyst at Exinity.

World stock markets stalled at two-week highs as increased restrictions in parts of the world to contain the spread of COVID-19 including the new Omicron variant tempered optimism on the vaccine front.

Focus was also on tensions over Russia and its stance on Ukraine, the diplomatic boycott of the Beijing Olympics by some Western nations and US sanctions on Iran.

Spot silver fell 2.1% to $21.92 per ounce, platinum slipped 2% to $937.10 and palladium dipped 3.1% to $1,797.12.