Gold rose half a percent on Thursday as a drop in the dollar prompted investors to buy, sending bullion back to the key technical resistance level near $1,330 an ounce.

The metal benefits as the dollar fell against the euro after a German Ifo survey showing business morale improved there. Data also showed new U.S. claims for jobless benefits edged higher last week, but remained within a range that suggests the labor market's recovery is on track.

However, an improving U.S. economic outlook could weigh on gold prices, analysts said. On Wednesday, data showed new U.S. home sales in June vaulted to a five-year high, while the U.S. manufacturing sector and eurozone private industry also improved in July.

"We still think there is potential for lower prices in gold because of seasonal weakness and signs of weaker jewelery demand from China," said Erica Rannestad, analyst at commodities research and consultant CPM Group.

Spot gold fell as low as $1,308.74 an ounce in early trading, but sharply recovered to $1,327.51 an ounce by 2:17 p.m. EDT, up 0.5 percent. The gain put spot bullion at its 50-day moving average of $1,327 an ounce, Reuters data showed.

U.S. gold futures for August delivery settled up $9.30 at $1,328.80 an ounce, with trading volume about 5 percent above its 30-day average, preliminary data showed.

Thursday's COMEX August option expiration helped boost turnover, and buying related to short-covering also supported gold futures, traders said.

The markets are awaiting fresh clues from the Federal Reserve on the outlook for its bond-buying stimulus program, which has helped fuel gold's rally to record highs in recent years. The U.S. central bank meets next Tuesday and Wednesday, with a policy statement due at the end of the two-day meeting.

The world's largest silver-backed exchange-traded fund iShares Silver Trust posted its biggest one-day jump in holdings since January as a rebound in silver prices triggered resurgent buying from longer-term retail investors, analysts said on Thursday. The move stands in sharp contrast to a month ago when the silver ETF's tonnage tumbled to a 2013 low, sparking fears that mom-and-pop investors were beginning to lose faith in the metal.

After falling toward technical support at $18 twice and holding there each time, silver's price has gained 11 percent in the past 30 days. Year to date, silver is still down 33 percent, underperforming gold, which is down 21 percent. Silver was up 0.2 percent at $20.18 an ounce.

Among platinum group metals, platinum was down 18 cents at $1,442.74 an ounce and palladium dropped 1 percent to $737 an ounce.