Gold held around US$1,660 an ounce on Wednesday as investors awaited policy decisions by central banks in Japan and the euro zone, while physical buying interest from Asia helped support sentiment.
Gold fell to a more than four-month low below US$1,630 an ounce last week after investors were spooked by minutes from the Federal Reserve which showed concerns about the side effects of quantitative easing.
Monetary stimulus measures taken by central banks in the United States and Europe have helped drive gold to its twelfth year of gains, as investors worried about the debasement of paper currency fled to hard assets.
The Bank of Japan will consider easing monetary policy again this month, while the European Central Bank is expected to hold interest rates unchanged at a meeting on Thursday.
Analysts said the sell-off was overdone, as there is no clear signal that the Fed will scale down or stop its bond purchasing programme any time soon.
"One clear signal for gold to sell off is if we see real rates go higher," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore, "But that's not for now."
Schnider said lower-than-expected inflation globally last year, especially in the last quarter, made gold less attractive to investors, who had become seemingly immune to repeated rounds of quantitative easing.
Spot gold traded nearly flat at US$1,658.04 an ounce by 0344 GMT, after rising 0.7 percent in the previous session, but was pressured by the 200-day moving average at US$1,660.93.
US gold inched down 0.2 percent to US$1,658.50.
Technical analysis suggested spot gold could drop to US$1,642.14 an ounce during the day, as it looks weak when approaching resistance at $1,660, said Reuters market analyst Wang Tao.
Strong physical buying interest from Asian countries, including top two gold consumers India and China, is likely to stay supportive of gold prices, although the lack of fresh momentum will make it hard for gold to push significantly higher, traders and analysts said.
"Gold will probably trade in a broad range of US$1,625 to US$1,675 in the next few weeks," said a Singapore-based trader.
Premiums on gold shipments to India jumped to their highest level in two months on Tuesday as traders rushed to place orders for the metal ahead of an expected rise in import duty, even as gold refiners overseas hurried to keep pace.
Holdings of iShares Silver Trust, the world's biggest silver-backed exchange-traded fund, rose to 10,112.22 tonnes on January 7, its highest since May 2011.
Spot silver barely changed at US$30.36, after rising more than 9 percent in 2012.