Gold settled lower on Tuesday thanks to a rise in equities and uncertainty over the U.S. growth outlook after a disappointing jobs report last week.
Markets speculated that Friday's non-farm payrolls showing U.S. employers added jobs at a much slower pace than expected could prompt the Federal Reserve to proceed cautiously in tapering its monetary stimulus program, causing equities and the dollar to drop.
Gold, which benefits from a low interest rate environment that encourages investors to put money into non-interest-bearing assets, rallied to its highest level since Dec. 12 at $1,255.00 an ounce.
The dollar steadied against a basket of six major currencies, rebounding from its lowest level since Jan. 2 hit after the U.S. jobs report on Friday, while U.S. Treasury yields steadied at 2.8 percent.
As gold pays no interest, returns on U.S. bonds are closely watched by the market.
Gold's steadiness was also helped by lower global equities.
"The support that we are seeing for gold is coming from the weak U.S. payrolls number last week, and (for that reason) we have seen some weakness in the dollar and equities,'' Deutsche Bank analyst Michael Lewis said.
"But we are not expecting any durable rally in gold from here,'' he added. "We just had a pocket of data that helped the metal a little bit, but our view for this year is one where we are going to see QE tapering gathering speed, an improvement in the U.S. labor market and a strengthening dollar.''
The metal lost 28 percent of its value in 2013, ending a 12-year bull run, as worries over a cut in stimulus prompted investors to shift money to equities.
But a slow start in some stock markets this year has boosted gold prices, usually seen as a hedge against rising prices and as an alternative investment to equities.
The Fed last month announced its first cut to its $85 billion monthly bond purchases, citing an improving economy.
"It probably all lies on the next FOMC meeting to see whether the Fed continues with easing back on the tapering and what the position of members is for future months,'' Société Générale analyst Robin Bhar said.
The next meeting of the Federal Open Market Committee is Jan. 28-29.