Gold edged higher on Monday after clocking its biggest quarterly fall ever, helped by comments from a U.S. Federal Reserve official on the need to maintain the bank's stimulus measures for longer and as Asian stocks eased.
Bullion fell 5 percent last week to three-year lows as investors dumped gold, fearing an early end to the Fed's $85 billion monthly bond purchases. Stimulus measures have driven liquidity towards commodities and supported gold's appeal as a hedge against inflation.
"What really needs to happen now for gold to regain the trust of investors is that at the very least it needs to consolidate for a few days and gain a little bit more credibility," said a precious metals trader in Hong Kong.
Spot gold rose 0.7 percent to $1,241.21 an ounce by 0345 GMT, while Comex gold rose about $17 to $1,240.80.
Gold fell 23 percent in the June quarter, dropping to below $1,200 an ounce. Outflows from gold backed exchange-traded funds (ETFs) have accelerated due to the recent decline in prices, erasing confidence in the metal.
"Every time prices try to come back, there seems to be steady selling coming out of the West," the trader said.
Outflows from SPDR Gold Trust, the largest gold ETF, have totalled nearly 13 million ounces so far this year.
San Francisco Federal Reserve Bank President John Williams said on Friday he had backed off from his earlier view that the Fed should start cutting back on stimulus this summer in part because inflation has been lower than he expected.
Investors are now waiting for the U.S. nonfarm payrolls data expected on Friday to determine the strength of the U.S. economic recovery, which is key for the timing of the Fed's stimulus scale-back.
Asian equities edged lower on Monday after China's factory activity reached its lowest in nine months in June, deepening worries about the world's second-largest economy. Surging stock markets this year have pulled investors away from gold.
Physical demand from India and China, the top two gold consumers, is also being closely watched. Dealers and traders have said demand has not picked up as strongly as expected despite the lower prices.
Strong buying in April, when prices fell the most in 30 years, helped cap some of the metal's losses.
"Demand response from the two key consuming markets is likely to be less powerful than during the previous one, suggesting the Indian government's efforts to curb imports are working, and Chinese consumers might have bought what they wanted," Macquarie analysts said in a note.
The Indian government banned consignment imports and hiked its import duty on gold, in an effort to reduce its current account deficit.
Precious metals prices 0345 GMT
Metal Last Change Pct chg YTD pct chg Volume
Spot Gold 1241.21 8.07 +0.65 -25.88
Spot Silver 19.67 0.06 +0.31 -35.04
Spot Platinum 1335.00 -3.67 -0.27 -13.03
Spot Palladium 663.00 7.00 +1.07 -4.19
COMEX GOLD AUG3 1240.80 17.10 +1.40 -25.96 26940
COMEX SILVER SEP3 0.20 0.00 +0.92 -99.35 9100
COMEX gold and silver contracts show the most active months