The Federal Reserve has pegged low interest rates to the unemployment rate, which means many investors are worried that the central bank may end its longer-term Treasuries and mortgage-backed securities purchasing if employment continues to improve. The market sees highly accommodative Fed policy as inflationary, which makes gold an appealing hedge.

The World Gold Council announced Thursday morning its report on gold demand in 2012. The report showed central bank buying increased 17%, totaling 534.6 tons, against 2011, and that ETF investments worldwide gained 51% compared to the previous year.

India and China, which account for a massive amount of gold's physical demand in the world, both saw demand down or flat in 2012. But low demand in the two countries may not dissuade investors into 2013.

"We expect India and China to remain a very important part of the story," Juan Carlos Artigas, global head of investment research at the World Gold Council, said in an interview. "Market expectations on gold demand from India are between 865 and 965 tons, and for China market expectations are between 780 and 880 tons, which basically means that they would remain the two largest markets in the world."

Most of mainland China remains on holiday for the entire trading week as locals celebrate the Lunar New Year, but some demand re-entered the market on Thursday as Hong Kong resumed trading, according to HSBC's Wen.

But trading has remained thin throughout this week as the absence of most of China's trade has weighed on the gold market.

"Certainly when they are in holiday all week that does make for, not only less demand for precious metals, but just a quieter marketplace and we've seen that this week," Jim Wyckoff, senior metals analyst at Kitco.com, said in an interview.

Gold mining stocks were mixed on Thursday. Shares of Kinross Gold ( KGC) were jumping 5.4%, while shares of Randgold Resources ( GOLD) were losing 1.3%.

Among volume leaders, Barrick Gold ( ABX) was lifting 3.6%.

Gold ETF SPDR Gold Trust ( GLD) was off 0.51%, while iShares Gold Trust ( IAU) was dipping 0.55. ETFS Gold Trust ( SGOL) was down 0.47%.

-- Written by Joe Deaux in New York.

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