Gold rose nearly one percent on Tuesday after a top European Central Bank official said the euro zone crisis was not over, but the metal remained vulnerable as redemptions in gold-backed exchange-traded funds continued, analysts said.
Bundesbank's chief Jens Weidmann, also a member of the ECB Governing Council, also said the German central bank had set aside billions more euros against what it deemed risky ECB moves.
The metal briefly rose near $1,600 an ounce, a near two-week high. Last week, it had found support in an area near $1,560 an ounce, weighed down by an equities rally and an improving U.S. economic outlook. A lack of buying interest in gold investment products, however, could trigger another round of pullback, analysts said.
"Prices appear to be building some mild upside momentum, but until liquidation in gold exchange-traded funds (ETFs) ceases, we do not expect too much on the upside for gold," said James Steel, metals analyst at HSBC.
Spot gold was up 0.7 percent at $1,592, on track for its biggest one-day gain in two weeks. Earlier, gold rose as much as 1.1 percent to $1,598.20 an ounce, its highest level since Feb 28.
U.S. gold for April delivery ended up $13.70 to settle at $1,591.70 an ounce.
A brighter U.S. economic outlook appears to prompt momentum investors to favor equities over gold.
Holdings of SPDR Gold Trust,the world's biggest gold-backed ETF, fell to the lowest since October 2011 at 1,236.729 tonnes as of Monday. Other analysts, however, said that the pace at which ETFs investors exit their positions has been easing in the past week, which should help stem recent losses in gold.
Other analysts, however, said that the pace at which ETFs investors exit their positions has been easing in the past week, which should help stem recent losses in gold.
On Friday, gold slid to a two-week low near $1,560 before ended flat after a better-than-expected U.S. nonfarm payrolls report. The Dow Jones industrial average was flat on Tuesday after it hit a record high for the fifth consecutive session on Monday.