Gold edged higher on Tuesday, following its worst weekly performance in two months last week, supported by improving physical demand and some investor uncertainty ahead of minutes from the U.S. Federal Reserve's recent policy meeting.
The Fed did not offer any indication at its annual meeting at Jackson Hole over the weekend that it would offer any additional policy measures, such as more quantitative easing to prop up the sputtering economy.
Data on Monday showed U.S. consumer spending rose at its fastest pace in five months in July, soothing some concern about a possible slip back into recession, which boosted stocks, the dollar and some commodities, including base metals.
The largest margin increase in over two years on COMEX gold futures last week resulted in a third weekly decline in speculative interest in the metal, yet analysts said the high level of uncertainty pervading the financial markets right now would support the price.
Spot gold was last quoted 0.3 percent up on the day at $1,793.00 an ounce by 0925 GMT (5:25 a.m. ET), having fallen by more than 1 percent last week, when investors stripped more than $200 off the price after it hit a record $1,911.76 on Aug 23.
Given the ascendancy we've had, (price falls) shouldn't be a surprise and I suppose any dips, or sell-offs of that sort are manna from heaven for people who haven't yet bought into the story, said Credit Agricole analyst Robin Bhar.
You'd have to say 'buy the dips' because with all the uncertainty all still very present and far from being resolved, despite better data, you still want gold as an insurance.
In the euro zone, data showed the economic climate was worse than expected in August, highlighting the prospect of a further slowdown in growth in the second half of the year.
Meanwhile, the International Monetary Fund cut its growth forecasts for the United States to 1.6 percent from a forecast of 2.5 percent made just two months ago, and added both the Fed and the European Central Bank must be ready to ease policy.
The Fed releases the minutes from its August policy meeting later in the day. The central bank is split internally over what steps to take to bolster growth and markets reacted positively to Chairman Ben Bernanke's decision at Jackson Hole to let the next policy meeting run for two days, rather than one,
For now, the Fed has managed to buy itself some time to gather more data and mull over what to do next. This is positive for gold, in our view, wrote UBS strategist Edel Tully in a note.
The market is likely to be volatile over the next few weeks, until there is clearer guidance from the Fed, which will likely come after the 2-day FOMC meeting in September. That the scheduled meeting has been extended for an extra day suggests that deliberations on potential policy actions will be comprehensive.
The Fed is caught between a struggling recovery and high unemployment on one side, and political pressures against more monetary easing on the other. It has already pushed interest rates close to zero and bought $2.3 trillion in bonds to try to lower longer-term borrowing costs.
The physical market saw demand from jewelers as prices remained below all-time highs, while main consumer India was expected to step up purchases before the wedding season resumes in September.
Hong Kong dealers quoted premiums for gold bars as high as $1.50 an ounce to spot London prices, from $1.20 last week. Bullion markets were closed in Singapore, Indonesia and Malaysia for the Muslim Eid al-Fitr festival.
In other precious metals, silver fell by half a percent to $40.56 an ounce, while platinum and palladium rose in sympathy with metals such as copper and nickel.
Platinum was last up 0.5 percent at $1,827.49 an ounce, while palladium rose nearly 1 percent to $757.22 an ounce.
(Additional reporting by Lewa Pardomuan in Singapore; editing by Jason Neely)