Gold rebounded on Tuesday from a one-month low hit in the prior session, helped by short covering and a rise in bullion-backed exchange traded fund holdings, but expectations of higher U.S. interest rates and a lack of physical buying capped gains.
Some gold investors have turned bearish after comments last week from U.S. Federal Reserve Chief Janet Yellen that suggested interest rates could rise sooner than many had expected, hurting bullion's appeal as a hedge against inflation.
Gold added $4.43 to $1,313.55 an ounce by 0337 GMT, off Monday's trough of $1,307.54, its weakest since Feb. 20, but below a six-month top of $1,391.76 hit last week.
"ETF holdings have been supportive. Much of that has been the main reason why prices this year have been stable," said Mark Keenan, head of Commodities Research for Asia at Societe Generale. "Short covering at the start of the year and the safe-haven appeal throughout the EM (emerging market) and Ukrainian crisis" have also underpinned prices, he said.
"But ultimately, these factors have been short-lived," Keenan said. "The larger macro-economics framework still remains very bearish for gold. With the price unable to break through $1,400 recently, selling has returned to the market and it remains back on track for lower numbers."
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.55 percent to 821.47 tonnes on Monday from 816.97 tonnes on Friday.
In terms of ounces, the holdings are at their highest since December.
Investors are also eyeing the Ukraine crisis for trading cues. U.S. President Barack Obama and major industrialised allies warned Russia that it faced damaging economic sanctions if President Vladimir Putin takes further action to destabilise Ukraine following the seizure of Crimea.
U.S. gold was at $1,314.20 an ounce, up $3.00.
Physical dealers said demand from jewellers and retail investors was subdued, keeping premiums for gold bars little changed in Singapore at $1 an ounce to the spot London prices.
"To be very honest, physical demand hasn't picked up. I don't know what customers are waiting for. Prices are a lot cheaper than last week, but the demand is not there," said a dealer in Singapore.
"I am actually quite shocked. I mean, you do see some buying but buyers are just not taking physical delivery."
Dealers in Hong Kong complained that a weak yuan and discounted prices on the Shanghai Gold Exchange had curbed buying interest from China, the world's top consumer.
In other markets, Asian shares were in a defensive mode after Wall Street fell overnight, though still-vague hopes of a new stimulus plan in China could improve investor sentiment.