Gold bounced from its weakest level in almost a week on Thursday as rising tensions in the Korean peninsula stirred some safe-haven buying in Asia, though gains are likely to be capped by uncertainty over the Federal Reserve's stimulus programme.
Heavy outflows from gold exchange-traded funds also weighed on the metal, in addition to rallies in stock markets and Cyprus' plan to sell excess bullion reserves to help finance its part of its bailout.
Gold hit its lowest since April 5 at $1,553.10 an ounce before rebounding to $1,560.21 by 0349 GMT, up $2.07. Bullion declined more than 1 percent on Wednesday in its biggest one-day fall since February 20.
"I guess people are watching the North Korean missiles. There's some tension here, and somebody is buying gold," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.
"But I think the reality is the ETF is selling. Last night, (the outflow) was around 17 tonnes, and that's a huge amount. I think that has more impact on the market," said Ikemizu, who pegged support level at last week's 10-month low around $1,540
U.S. gold for June delivery was at $1,560.00 an ounce, up $1.20.
South Korea and the United States remained on high alert for any North Korean missile launch as the North turned its attention to celebrating its ruling Kim dynasty and appeared to dial down rhetoric of impending war.
Gold had ignored the tensions earlier this week, but bargain hunters and jewellers resurfaced on Thursday as bullion's outlook remained patchy on fears the Fed's bullion-friendly bond buying programme could end soon.
It had jumped to an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus, raising fears the central bank's money-printing to buy assets will stoke inflation
"The market is already down, so you're seeing short covering from the jewellery sector. There's a bit of buying related to North Korea, but I think if they hit the U.S., they will face retaliation," said a dealer in Hong Kong.
"North Korea will be finished off. I think the most important thing is the ETF. If liquidation continues, there will be more pressure on gold."
Reaction to gold sales by Cyprus was largely muted in Asia, although investor fears remain that other debt-stricken euro zone members such as Portugal and Greece could follow suit.
Cyprus, one of the euro zone's smallest economies, has to sell most of its gold reserves to raise around 400 million euros - the first major gold disposal by a euro area central bank since France sold 17.4 tonnes in the first half of 2009.
At current prices, 400 million euros' worth of gold amounts to just over 10 tonnes of metal.
"We have not made any sure future decisions yet on buying more gold. We were aware that Cyprus is selling gold, but right now we have no plans regarding gold purchases," said a Bank of Korea official.
"About 700 to 800 tonnes of gold are traded in a single day and 10 tonnes is very small compared to this, obviously."
In other markets, Wall Street's record closing overnight and growing optimism about the Chinese economy underpinned Asian shares on Thursday while the Bank of Japan's bold monetary stimulus kept the yen pinned near fresh lows against major currencies