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Gold prices held steady on Wednesday, as Britain's approval of the COVID-19 vaccine developed by AstraZeneca and Oxford University drove appetite for risk and a weaker dollar limited bullion's losses in thin holiday trade.

Spot gold was little changed at $1,877.87 per ounce by 1205 GMT. U.S. gold futures were down 0.1% to $1,881.80.

"You have the vaccine news which is a bit positive (for the economy) but the dollar is still quite weak after approval of the U.S. fiscal stimulus," said Bank of China International analyst Xiao Fu.

European stocks gained after Britain became the first to approve the COVID-19 vaccine developed by AstraZeneca and Oxford University.

However, underpinning gold, the dollar index hit a more than two-year low, as traders shrugged off Republican Senate Majority Leader Mitch McConnell's decision to delay a vote on increasing COVID-19 relief checks to $2,000.

Gold is seen as a hedge against inflation and currency debasement likely to result from large stimulus measures.

"The bigger picture is that gold is still holding up incredibly well at these price levels and the fiscal and monetary stimulus will still be there in 2021 as the pandemic is hitting hard in the U.S., Europe," said Bank of China International's Fu.

Investors await the Jan. 5 Georgia runoff elections that will determine which political party will control the U.S. Senate, with expectations for more stimulus under a Democrat-controlled Senate and House.

"Exchange-traded fund flows are set to have a major say on how gold performs over the course of 2021, with investors expected to wade further out into risk-on waters," said FXTM market analyst Han Tan.

Among other precious metals, silver was up 0.4% to $26.28 an ounce, platinum gained 1.1% to $1,060.68 and palladium rose 0.7% to $2,344.72.

(Reporting by Asha Sistla and Nakul Iyer in Bengaluru; editing by Barbara Lewis and Susan Fenton)