Bullion prices gained in Europe on Wednesday as the previous day's big sell-off attracted buying, but many traders were still bracing for further fund liquidation. Such was the weight of the record-high long position still hanging over the market that, for the moment, gold continued to ignore high oil prices.
"Record high oil prices have failed to spark much interest in gold, with the already large fund length in gold capping the upside and investors appearing to be more concerned about the negative impact on economic growth rather than inflationary pressures," Barclays Capital said in a report.
Gold, which is seen as a classic hedge against inflation, is often lifted by higher oil prices.
The bank also noted that between April and September of last year gold defied tradition and traded in a largely inverse manner to inflationary expectations.
"This highlights that inflationary expectations are still too low to be meaningful for gold and that prices continue to be dominated by currency movements over other factors."
Gold's steady tone on Wednesday afternoon coincided with a dip in the dollar after data showed the US economy grew slightly less in the second quarter than initially reported.
By 1452 GMT spot gold had edged up to $433.40/434.20 a troy ounce, gaining over $2 on late levels in New York on Tuesday at $431.00/431.80.
Gold fell some 1.8 percent the previous day to a four-week low of $429, taking prices further away from a new high for the year hit in mid-August at $449.
Traders and analysts felt a high risk remained that funds would start selling again, possibly dragging prices down to the mid-$420s.
"There are so many longs that you would feel more comfortable with some of that shaken out," one dealer said.
"They have been holding on since we flirted with $440, but the more recent positions are from higher levels and below here I think that you do see more pain and liquidation."
Others noted sporadic physical buying into the latest dips, which was seen likely to pick up as the wedding season in India, the world's largest consumer, kicked off later in the year.
For now volatile bullion prices have restricted buying from jewellery manufacturers in parts of Asia, while in Japan investors are putting their money into the energy market rather than gold.
UBS Investment Bank said in a report its sales desks were seeing only subdued physical interest considering the size of the recent price move.
Silver also stabilised after a recent bout of fund selling took prices to their lowest since February at $6.63. Spot rose to $6.77/6.80 a troy ounce from $6.68/6.71.
Platinum was flat at $887.00/891.00, while palladium was unmoved at $182.00/185.00.