Gold rose slightly on Tuesday after a recent drop in prices spurred buying from jewelers in Asia, but a firmer U.S. dollar and volatile stock markets could prompt speculators to sell bullion to cover losses.
Gold's failure to revisit a recent record could also spur some selling, though dealers expected jewelers to snap up the metal at lower levels. Platinum fell to its weakest since late May on lower equities, while palladium saw bargain buying after recent declines.
Gold added 35 cents to $1,207.30 an ounce by 0535 GMT (1:35 a.m. EDT), having hit a high around $1,209. Gold slipped 3.4 percent last week, moving away from the record $1,264.90 hit in June, as risk aversion linked to fears over Europe's debt crisis waned.
What gold needs now is a fresh catalyst. It needs something to trigger it to go higher. We might be seeing investors cashing up to rebalance other markets, said Mark Pervan, senior commodities analyst at ANZ in Melbourne.
There's certainly been a fair bit of disappointment that it was unable to break a fresh record high early last week, said Pervan, who pegged support at a May level around $1,170 an ounce.
U.S. gold futures for August delivery added $1.2 to $1,208.9 an ounce, having traded as low as $1,203.4. U.S. financial markets reopen on Tuesday after a holiday for the country's independence day.
There's very good physical demand out of Indonesia and Thailand. Premiums now range from 40 to 70 cents, said a dealer in Singapore, who offered gold bars at a premium of up to 60 cents last week.
Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), were unchanged at 1,318.915 tonnes.
The euro edged down to $1.2514, with global risk appetite taking a beating on growing worries about the health of the euro zone's banking system, a slowdown in China and risks of a double-dip recession in the United States.
The Nikkei rebounded on Tuesday, having fallen to a seven month low on economic worries and after the yen firmed on comments from ex-IMF chief economist Kenneth Rogoff on the website of news agency Bloomberg that China's property market was beginning a collapse. .T
A bullion dealer in Hong Kong said, There's a bit of physical buying because the price is more or less similar to yesterday's levels. I guess people wait for the U.S. market reopen and then see what happens.
He added, We have to watch out if the U.S. is in a recession. If it's in a recession, then investors will be selling gold. If there's no money in their pockets, how can they buy gold?
Commodities began the third quarter with a near 5 percent tumble in oil and a sharp sell-off in metals as fears of a global economic slowdown extended the sector's woeful performance in the past three months.