Gold prices edged higher in thin trade on Wednesday, as investors waited for cues from further developments in the euro zone's debt crisis, and robust physical demand in Asia underpinned the sentiment.
Slovakia's parliament voted against the expansion of the euro zone's rescue fund, but the move is unlikely to dampen confidence the euro zone will come up with solutions to its debt crisis.
Slovakia is not a big enough player to get in the way, said a Singapore-based trader.
The will in the euro zone is gravitating towards the idea that they will have to do whatever it takes to prevent contagion. Eventually we will see some kind of pan-European deal cut.
International lenders said they were likely to grant a loan to Greece next month, buying time for a broader response, after Germany and France pledged to craft new steps to resolve the debt crisis by the end of the month.
Spot gold edged up 0.4 percent to $1,671.60 by 0646 GMT, reversing a 0.8-percent decline in the previous session.
US gold gained 0.8 percent to $1,673.70. Technical analysis suggested that gold is likely to be trapped in the range of $1,653 and $1,684 in the day, said Reuters market analyst Wang Tao.
PREMIUMS HIGH ON PHYSICALS' SHORT SUPPLY
Premiums in Singapore and Hong Kong remained at high levels because of the short supply of physical materials.
The premiums are about $2.50, as most dealers are still filling the orders that were pre-booked a week or two ago, said the dealer. The buying has slowed down a bit in the past two days, but the Thais are still looking at buying on dips.
Dealers in Hong Kong said premiums were as high as $4.5 an ounce above spot prices, as demand from mainland China stayed robust after the National Day holiday last week.
Chinese demand is likely to remain strong until the end of the year, said a Hong Kong-based dealer.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust , stood at 1,227.994 tonnes by Oct. 11, little changed from the end of September and down 4 percent so far this year, while spot gold prices rose 17 percent during the period.
Stabilization in the investment indications could be backstopped by support in physical demand, where the end of the Chinese holiday last week has created recovery. Similarly, Indian demand is anticipated to increase soon due to the end of a favorable monsoon season, said MF Global analyst Tom Pawlicki in a research note.
The Dow Jones-UBS Commodity Index announced its 2012 re-weightings, adding Brent crude oil to its components while cutting the weightings of gold and silver.
Central banks' net gold buying for this year could be close to 500 tonnes, said Thomson Reuters GFMS, up from 336 tonnes forecast last month.