Gold bounced on Wednesday from its weakest level since mid-February but signs of a recovery in the U.S. economy and an absence of support from the physical sector could limit gains and keep prices in a tight range.
In a sign of tepid physical demand, premiums for gold bars in Asia were little changed at between 25 cents to $1 an ounce to the spot London prices this week, partly due to concerns that a weak yuan could hurt demand from main consumer China.
Gold rose 0.2 percent, or $2.11 an ounce, to $1,312.55 by 0329 GMT. It fell to $1,305.59 an ounce on Tuesday, its lowest since Feb. 14, before recovering.
"There's some bargain hunting, but there's still sufficient supply and the premiums are not going up," said Brian Lan, managing director of GoldSilver Central Pte Ltd in Singapore.
"(Gold) is still within the trading band, I would say."
Gold has fallen from a six-month high of $1,391.76 hit early last week after U.S. Federal Reserve Chief Janet Yellen suggested interest rates could rise sooner than many had expected, denting bullion's appeal as a hedge against inflation.
U.S. consumer confidence surged to a six-year high in March and house prices increased solidly in January, positioning the economy for stronger growth after a weather-induced soft spot.
But the drop in gold prices failed to ignite a rush in physical buying, with dealers in Hong Kong complaining about a slowdown in demand from jewellers and retail investors from mainland China.
U.S. gold, which often influences spot gold, was at $1,313.10 an ounce, up $1.70.
Asian shares raced to two-week highs on Wednesday, with investor confidence getting a much needed boost from upbeat U.S. data and lingering hopes China may take steps to stimulate its sagging economy.
The euro stood little changed at $1.3818, pulling back from a three-week trough of $1.3749 hit on Tuesday. The U.S. dollar index, which measures the dollar against six major currencies, was last up 0.1 percent at 79.985.
Gold already discounted tensions in Ukraine triggered by the seizure of Crimea by Russia, with investors turning their attention to the dollar and U.S. monetary policy.
"If physical demand isn't coming in below $1,300, then we may try to go lower," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. "There's not much incentive to move at the moment. It will be in a range of $1,300 to $1,320."
Russia has increased its gold holdings by 7.247 tonnes to 1,041.96 tonnes in February and Turkey also raised its bullion reserves after a sharp fall in the previous month, data from the International Monetary Fund showed on Wednesday.
Hong Kong's net gold exports to China jumped 25 percent in February after a drop in the previous month, data showed, but demand in March could be curbed by a weaker yuan and the discounted prices on the mainland.