Gold prices edged lower in light volume on Tuesday, as the market took a breather after last week's rally and investors shifted their attention to a flurry of key economic events in Europe and central bank meetings scheduled later this month.

Bullion continued to consolidate last week's 3.5 percent gain as business surveys showed that all of the euro zone's major economies are now in decline. Investor sentiment remains jittery as Spain said credit markets were closing as G7 finance chiefs held emergency talks on the currency bloc's worsening debt crisis. The metal surged 4.3 percent last Friday after a disappointing U.S. jobs report fueled speculation of further U.S. monetary easing. Investors now mull over gold's response to a tumultuous June ahead of a key election in Greece which could hasten its exit from the euro zone, and major central-bank meetings later this month.

If we have conditions that could lead to additional duress in the equities market and further easing, and gold doesn't respond positively to that, then we are seeing a breakdown of its fundamental use as a hedge in portfolios, said Mark Luschini, chief investment strategist at Janney Montgomery Scott, a broker-dealer with about $54 billion in assets.

Spot gold edged down 0.2 percent at $1,615.66 an ounce by 11:53 a.m. EDT (1553 GMT).

Trading volume was lower than usual due to a British market holiday. U.S. COMEX gold futures for August delivery was up $3.30 at $1,617.20.

On the options front, analysts said that some volatility indicators and recent trading of SPDR Gold Trust, the world's largest gold exchange-traded fund, suggested bullion prices should rise.

Long GLD call spreads have been the options trade of choice over the last few trading sessions as investors looked to implement a bullish bias with limited volatility exposure, Philip Saunders, equity derivative strategist at broker-dealer Topeka Capital Markets said in a note.

CHINESE BUYING SUPPORTS

Confidence in gold, which has been knocked by weak consumption in number one gold buyer India in recent months, was underpinned by data on Monday that showed extremely elevated imports of the metal into China.

HSBC said in a note that China's sustained higher appetite for physical gold imports, especially gold coins, should boost the price of the metal.

Among other precious metals, silver rose 0.6 percent at $28.38 an ounce. Spot platinum was up 0.9 percent at $1,434.99 an ounce, while spot palladium was up 1 percent at $614.22 an ounce.