Gold futures settled nearly unchanged at $1,649 per ounce on Tuesday, as the dollar fell following a statement from the Group of Seven industrialized countries reaffirming commitment to market-determined exchange rates.
Earlier, the market struggled to regain positive territory as investors concentrated on a brighter global economic picture. Gold also failed to reprise its safe-haven role after North Korea confirmed it had conducted an underground nuclear test.
Spot gold hit a low of $1,638.82 an ounce early on Tuesday, its lowest since Jan. 4, later rallying to trade 0.1 percent higher at $1,651 an ounce, flat on the day. U.S. gold futures ended 50 cents higher at $1,649.60 an ounce.
The dollar index, which rose in early trade to a one-month high against a basket of currencies, fell back after the G7 nations reiterated a commitment to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.
"A combination of elements, including dollar weakness after the G7 statement, rebounding stock markets and stronger oil prices, helped gold's bounce back from one-month lows," Quantative Commodity Research consultant Peter Fertig said.
The G7 intervention followed a round of rhetoric about currency wars, prompted largely by Japan's new government pressing for an aggressive expansion of monetary policy, which has seen the yen weaken sharply.
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"The next focus for the market is the G20 meeting on Friday and Saturday, where finance ministers can give more clues on currencies," Danske Bank analyst Christin Tuxen said.
Technical selling pressure on gold started in the previous session after prices slid through a succession of key support levels and below $1,650, suggesting further liquidation is possible.
Investor sentiment towards gold is still seen declining in the short term, while volumes remain thin as most Asian players are on holiday this week, analysts said.
"The physical demand remains anaemic with China away on public holidays this week while the rupee weakened last week, deterring Indian buyers," VTB analyst Andrey Kryuchenkov said.
"At this point, bullion buyers in Asia would not want to get involved in an investor driven market when sentiment towards gold continues to sink."
Gold has underperformed other precious metals since the start of the year as signs of improved economic recovery have deterred investors, who have favored riskier assets such as equities and more industrial metals such as platinum and palladium, analysts said.
"The ever increasing macro confidence has dented bullion's traditional safe-haven appeal, while alternative and more volatile assets, including PGMs, offer better returns away from gold," Kryuchenkov said.
Platinum and palladium rose strongly on increased buying activity and strong fundamentals, although remaining below recent highs.
Year to date, the platinum group metals have benefited from an improving economic outlook and after mining disruptions in South Africa, as well as a drop in supply from Russia, triggered fears of a deficit.