Gold edged back towards $1,220 an ounce on Wednesday as it continued its recovery from this week's near four-month low.
Activity was muted ahead of a speech by US Federal Reserve Chair Janet Yellen later in the day which could give clues on the Fed's attitude towards inflation, and on when the US central bank will start reducing its $4.5-trillion balance sheet. That would likely push up bond yields, boosting the opportunity cost of holding bullion, and pushing gold lower.
Spot gold was up 0.1 per cent at $1,218.90 an ounce at 1000 GMT, while US gold futures for August delivery were up $3.40 an ounce at $1,218.10.
“For now markets are in wait and see mode ahead of this afternoon,” Mitsubishi analyst Jonathan Butler said.
“The next rate rise has been fairly well signposted, and we have a degree of consensus between the market and what the Fed are saying with regards to a third interest rate rise this year.”
“A more interesting question, particularly for gold, right now is what will happen to the yield environment if indeed the Fed chooses to scale back some of its holdings on the balance sheet,” he said.
“If we see (the Fed) no longer reinvesting in those the price will drop, the yield will go higher and that will make life more difficult for gold.”
The dollar held close to its lowest in more than a year against the euro, keeping gold broadly underpinned, while stock markets edged higher in light trading ahead of Yellen's testimony later.
In the major physical markets, Commerzbank said in a note that higher imports into number two consumer India, reported the previous day, could prove to be the last to show such strength for a while.
“Indian gold traders are likely to have brought purchases forward because a goods and services tax was introduced on gold purchases in India on 1 July,” it said.
“Many market observers expect imports to be significantly lower in the second half of the year, meaning that the gold price will lack this important crutch for some time.”
Among other precious metals, silver , which hit its lowest since April last year at $14.86 during a flash crash on Friday, was up 0.4 per cent at $15.84 per ounce.
Palladium was 0.8 per cent higher at $856.50 an ounce and platinum was up 0.3 per cent at $903.45 an ounce. The white metal slipped to its lowest this year on Tuesday, at $886.15 an ounce.