Gold inched up early on Tuesday, stabilising after sharp losses seen in the previous session, as investors gauged Federal Reserve officials' comments about the outlook for easy monetary policy and the strength of the US economy. Federal Reserve Bank of New York President William Dudley said he was "more hopeful" about the US economy but also that he expected "very accommodative" monetary policy to be in place "for a considerable period of time".
Spot gold was up 0.2 percent at $1,277.16 an ounce at 1514 GMT, after dropping 1.2 percent on Monday on lacklustre physical buying and gains in the stock markets, which diverted investment interest from bullion. Technical support was pegged at the recent low of $1,261, while a breach of the mid-October low of $1,251 would see the metal dropping further to June near-three-year lows of $1,180, ScotiaMocatta said in a note.
US gold futures for December delivery gained 0.2 percent to $1,275.00 an ounce. The dollar fell 0.1 percent against a basket of currencies, while US Treasury yields were flat at 2.67 percent. "The dollar has weakened quite a bit since last week's highs and that is supportive of gold at the moment," Saxo Bank senior manager Ole Hansen said. "But as long as the overall belief in the market is that tapering will come, it doesn't really matter if it happens in December or March, there is not much upward potential for gold."
Investor sentiment continued to remain bearish amid stronger stock markets. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.2 tonnes to 864.51 tonnes on Monday - the fund's lowest since February 2009. Physical demand, which usually tends to provide a floor for prices at lower levels, failed to emerge in a robust manner even after Monday's price drop. Demand has lately failed to pick up even below the $1,300 level as consumers had bought a lot of bullion when prices fell earlier in the year.
Silver rose 0.1 percent at $20.40 an ounce, after touching a three-month low of $20.46 in earlier trade. Spot platinum rose 0.7 percent to $1,422.50 an ounce, benefiting from news that South African power utility Eskom had declared an emergency after the grid came under severe constraint due to the loss of additional generating units. Spot palladium was up 1 percent at $721.50 an ounce.