Gold slipped on Tuesday, having failed to hurdle $1,400 per ounce, with physical demand overshadowed by hesitancy from investors in bullion-backed funds (ETFs) who were discouraged by a rising dollar and firmer stock markets.
Dealers also noted U.S. 10-year treasury yields above 2 percent and tame inflation expectations as other negative factors for the market as bullion has no interest rate.
Spot gold fell 1 percent to $1,380.50 an ounce by 1.55pm UAE time, after gaining more than half a percent on Monday. It rose 2 percent last week - its strongest weekly percentage gain in a month - but is still down around 18 percent for the year.
The dollar index was up 0.2 percent, while European stocks gained 1.2 percent.
"We made several attempts at the $1,400 level but, especially the last three, have failed every time," Saxo Bank senior manager Ole Hansen said.
"The tug of war continues as the physical market is happy picking up gold at these levels, but the paper market isn't - they are seeing bond yields up and inflation staying subdued. They're potentially worried that the dollar could have a bit of a renaissance," he added.
On physical markets bullion is being sold at high premiums compared to spot prices as there is not enough supply to meet the strong demand.
"We are not seeing any signs of slowing down. People are still thinking it is a good price to go in at," said Zane Lim, regional manager of operations at Singapore-based dealer BullionStar, adding that most bullion dealers in Singapore were sold out.
Gold is still near the two-year low of $1,321.35 hit in mid-April, with investors increasingly opting for higher-yielding equity markets.
Last week, bullion saw its biggest weekly gain in a month after the dollar and stocks were hit by factory data from China and the United States suggesting the pace of manufacturing had slowed.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, are at their lowest since mid-February 2009, falling 0.24 percent to 1,016.16 tonnes on Friday. The fund held 1,350.50 tonnes of gold at the beginning of 2013.
Demand in India, the world's biggest gold market, was subdued as the peak wedding season cools off, and its central bank is taking more steps to curb gold purchases.