Gold held on to sharp overnight gains on Tuesday as Asian equities slumped and investors worried over U.S. economic growth after disappointing manufacturing data.
Asian shares tumbled with Nikkei falling 3 percent, after Wall Street suffered its worst drop since June and as markets continued to fret over an emerging market rout.
Equities have come under pressure this year due to slowing growth in China and capital outflows from emerging nations where the U.S. Federal Reserve's stimulus tapering is taking a toll.
Gold is gaining as it is often seen as an alternative investment to stocks and other risky assets.
"Turmoil in emerging markets, due to the Fed's reduction of tapering, is causing some investors to become risk-off so they are looking to gold which has regained its status as a safe-haven asset," said Danny Laidler, head of Australia & New Zealand operations at ETF Securities.
Laidler said his firm saw global inflows of $44 million into its gold-backed exchange traded products last week - the largest inflows since August last year.
Gold will continue to benefit as there are likely to be more flows out of emerging markets, according to ETF Securities.
Spot gold was mostly unchanged at $1,256.76 an ounce by 0232 GMT, after gaining 1.1 percent on Monday.
The metal has gained 4 percent so far this year, after a 28 percent drop in 2013.
It is expected to revisit its January 27 high of $1,278.01 per ounce, as it could have resumed its uptrend that rose from the December 31 low of $1,184.50, Reuters technicals analyst Wang Tao said.
U.S. manufacturing activity slowed sharply in January on the back of the biggest drop in new orders in 33 years while construction spending barely rose in December, pointing to some loss of steam in the economy.
A weakening economy could prompt the Federal Reserve to slow the tapering of its bond-buying stimulus. The bond purchases had boosted gold prices by burnishing the precious metal's appeal as a hedge against inflation.
With the recent data and emerging market troubles, SPDR Gold Trust, the biggest gold-backed exchange-traded fund, has not seen any outflows in more than a week.
Holdings are still near five-year lows as the fund had seen record outflows of more than 17 million ounces last year.
Physical markets were quiet as China, the world's biggest consumer, was closed for the Lunar New Year holiday.