Gold rose in choppy trade on Wednesday as the two-year low it hit the previous session triggered Asian physical buying, but the market had trouble holding on to gains and is seen vulnerable to further sell-offs.
Bullion was sharply off its earlier high as economic worries roiled global markets. Sharp losses in U.S. equities and industrial commodities led by copper and crude oil continued to weigh on gold, a traditional inflation hedge.
Sentiment among gold investors remains shaken as bullion's historic selloff prompted markets to assess the damage to the metal's status as safe haven.
There were signs of improving physical demand from Asia, especially India, historically the world's largest bullion consumer. In addition, coin investors sought out potential bargains at sharply lower prices after gold's sell-off.
"We are seeing a lot of retail buying and not a lot of commercial and certainly not fund buying in this particular rally back," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.
"Investors are still very wary about economic slowdown and deflation," McGhee said.
Gold was up 0.1 percent at $1,369 an ounce, having tumbled to its lowest since January 2011 at $1,321.35 on Tuesday.
The market fell by a combined $225 on Friday and Monday, which compares with a total trading range of $260 in 2012. It is down about 18 percent so far this year, at risk of posting its first annual loss after 12 consecutive years of gains.
Asian physical buying pushed up premiums for gold bars in Singapore to their highest in 18 months at $1.70 an ounce to spot London prices.
India celebrates major gold-buying festival Akshaya Tritiya next month, and the wedding season will continue until early June.
U.S. gold futures settled down $4.70 at $1,382.70 an ounce. Turnover was heavy as trading volume has exceeded its 30-day average, preliminary Reuters data showed.
Cyprus Gold Sales Weigh
Worries are also festering that other indebted euro zone countries could follow Cyprus in selling bullion reserves to raise cash after the island's finance minister Harris Georgiades expected a sale within the next few months.
Investors continued to exit holdings of exchange-traded funds, with holdings in the world's largest gold-backed fund SPDR Gold Trust falling 0.73 percent to 1,145.92 tons on Tuesday from 1,154.34 tonnes on Monday.
Holdings of global gold ETFs are currently at their lowest since late 2011..
Among other precious metals, platinum and palladium fell on news that demand for new cars in the European Union declined for the 18th consecutive month in March, down 10.2 percent to 1.3 million.
Spot platinum fell 1.3 percent to nearly $1,425 an ounce, having touched its lowest since last August in the previous session. Palladium was down 2.7 percent to $659 per ounce. Silver edged down 0.9 percent to $23 an ounce.