Gold prices inched up on Tuesday as investors waited to see if, as widely expected, the Bank of Japan (BOJ) would shift to a more aggressive monetary stimulus at the end of a policy meeting, while brushing off a tax hike on Indian gold imports.
Speculation that the BOJ will take up bold measures to stimulate the world's third-largest economy sank the yen to a 2-1/2-year low on Monday and sent benchmark Tokyo gold to a record high last week as it fanned hopes that Japanese investors might restart buying gold after years of selling.
"Japanese investors having gold in their portfolio would be a tremendous story," said Dominic Schnider, analyst at UBS Wealth Management in Singapore, "Theoretically gold should become very attractive because the government wants to debase its currency."
Asia's physical gold market quietened down from the hustle at the start of the year as prices rebounded towards US$1,700, a key resistance level, traders said.
"Buying has slowed as people have bought enough before the Lunar New Year and prices have gone up," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong, a main conduit for gold to enter mainland China.
Trading volume on the gold futures contracts on the Shanghai Futures Exchange declined to 21,516 contracts, or 21,516 kilograms, on Monday, the lowest since mid-2011.
Spot gold edged up 0.1 percent to US$1,691.86 an ounce by 0319 GMT.
US gold gained 0.3 percent to US$1,691.80.
Technical analysis suggested spot gold needs to stand steady above resistance at US$1,694 an ounce to confirm a bullish target at US$1,706, said Reuters market analyst Wang Tao.
The much-watched US debt ceiling talks have showed signs of progress. Republican leaders in the House of Representatives have scheduled a vote on Wednesday on a nearly four-month extension of US borrowing limit, but the bill does not specify a dollar amount.
India has raised the import tax on gold by 2 percentage points to 6 percent to curb purchases and rein in a ballooning current account deficit, but industry officials expect only a moderate drop in demand.
Traders said the move has been largely priced in by the international market, and the impact on gold consumption would be limited as higher tariff may trigger more smuggling.
Spot platinum edged up 0.4 percent to US$1,680.49, in a discount to gold for a third straight session after briefly regaining premium last week.