"There might be some discussions going on, despite the worry about diesel vehicle demand, if the fundamentals really justify the market being around $900," James Steel, chief metals analyst for HSBC Securities in New York, said of the recovery from the lows.
"The dips have been met a little bit with some short-term buying."
Even before the Volkswagen scandal broke last week, the market had been suffering from an increase in supplies following the end of last year's five-month strike among platinum miners in major producer South Africa, and a weakness in Chinese jewelery demand.
Spot gold was down 0.3 percent at $1,127.80 an ounce, while U.S. gold futures for December delivery settled down $4.90 an ounce at $1,126.80.
Gold has come under pressure from uncertainty over when exactly the Federal Reserve will raise U.S. interest rates for the first time in nearly a decade. Conflicting views by policymakers, several of whom are scheduled to speak this week, have stirred more uncertainty.
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William Dudley, head of the New York Fed, and John Williams, head of the San Francisco Fed, both signalled support for a rate hike this year. But Charles Evans, head of the Chicago Fed, called for rates to stay near zero until mid-2016.
"Fed policy has been instrumental in influencing gold prices for many months," HSBC said in a note. "The bullion market consequently continues to look for any indicators of Fed policy shifts."
Gold spent much of the day trading just below unchanged, but extended losses slightly after equities turned higher in the afternoon.
Silver was up 0.5 percent at $14.63 an ounce, while palladium was up 1.7 percent at $654.75 an ounce.