Spot gold edged up 0.1 percent to US$1,721.41 an ounce by 0244 GMT, after tumbling 1.3 percent in the previous session
Gold ticked higher on Thursday, after suffering its biggest daily decline in nearly four weeks in the previous session, as the looming deadline for averting a US fiscal crisis kept investors on their toes.
Though gold has appeared unable to break the heavy resistance at US$1,750 an ounce in a few attempts over the past week, the generally bullish sentiment remained despite a flash crash that sank prices to as low as US$1,705.64 an ounce.
US lawmakers are engaged in talks to avert US$600bn worth of tax hikes and spending cuts that would roll in early next year, threatening to push the economy back to recession. In the latest development, House Speaker John Boehner voiced optimism that Republicans could broker a pact with the White House to avoid the "fiscal cliff" on Wednesday.
The threat of the US economy slipping off the fiscal cliff may keep gold prices supported, but the strength in the dollar - a more popular safe haven - is likely to weigh on gold's sentiment.
"Generally people are still pretty bullish on gold and last night was just a one-off correction, nothing extraordinary," said a Singapore-based trader, adding that US$1,650-US$1,700 would be a good buying level.
But he said physical demand was disappointing in Asia.
"We aren't seeing much physical demand, which is quite bad for this time of the year," he said.
Spot gold edged up 0.1 percent to US$1,721.41 an ounce by 0244 GMT, after tumbling 1.3 percent in the previous session due to a heavy bout of stop-loss selling.
US gold gained 0.3 percent to US$1,721.30.
Technical analysis was less sanguine, suggesting that spot gold could retrace to US$1,692 an ounce during the day, said Reuters market analyst Wang Tao.
The CME Group, which operates the US COMEX gold futures market, said that Wednesday's flash crash in gold was not the consequence of a "fat finger", or a human error when inputting data.
"It was not a 'fat finger'. The market sold off. No stop logic triggered either, which meant the price decline wasn't even fast enough to trigger a pause on Globex," said a spokesman for CME, referring to the group's electronic trading platform.
Holdings of the SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, hit a record high for a second consecutive day, underlying buoyant investment interest.
Its holdings stood at 1,347.018 tonnes on November 28, up nearly 11 tonnes so far this month, on course for its fourth month of straight gains, even though gold prices barely budged compared to the end of last month.