Gold edged up to settle at $1,391 on Wednesday, taking a cue from broad dollar losses and falling stock markets with residual support from strong Chinese physical buying.
But the root of weakness in wider markets — improved U.S. data suggesting the U.S. Federal Reserve might taper its monetary stimulus program — was also seen as a catalyst to ultimately take bullion prices lower.
"The Federal Reserve's developments are very much in focus and at the moment people are perceiving that they will be ending their supportive monetary policy sooner than expected and that the U.S. economy is improving," MKS Capital senior vice president Bernard Sin said.
Persistent outflows from gold-backed funds (ETFs) were also expected to heap more pressure on prices after spectacular falls in April that saw gold hit a two-year low.
Spot gold was up 0.9 percent to $1,392 an ounce, after falling in the previous session as equity markets were lifted by strong U.S. economic data.
"We still think gold is in bubble territory despite the April sell-off. The rise in U.S. bond yields will be a key factor going forwards," Christin Tuxen, analyst at Danske Bank, said.
In bond markets, U.S. 10-year Treasury yields remained around 13-month highs reached overnight on expectations the Fed would start thinking about paring stimulus.
European and U.S. stocks reversed Tuesday's gains, while the dollar was down 0.6 percent versus major currencies.
As gold has no interest rate, the rise in returns from U.S. bonds and other markets is seen as a negative signal.
U.S. gold futures settled $12.40 higher at $1,391.30 an ounce. The June contract will expire on Thursday.
"In the next few sessions the market will be very jittery as we are nearing the futures contract expiry on the COMEX platform," MKS's Sin said.
"Traders are unwinding futures positions and you see a lot of shorts being rolled into August, which suggests that more speculative selling is possible."
For now, lower prices of the precious metal are luring physical buyers across Asia, with dealers facing a tough time organising supplies to meet demand.
Premiums for gold kilogram bars in Singapore hit a record high at $7 an ounce over spot London prices, while premiums in Hong Kong ranged between $4 and $5 an ounce.
Gold futures in Shanghai are about $25 more than spot gold, indicating that demand was strong in China, the world's No. 2 consumer after India.
Meanwhile, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 1,012.25 tons on Tuesday, their lowest since February 2009.
Silver firmed at $22 an ounce, up 0.9 percent, while platinum fell 0.4 percent to $1,451 an ounce and palladium slipped 1 percent to $748 an ounce, having reached a near-two-month high of $760.97 in the previous session.