Gold jumped more than 2 percent on Monday after a rebound above $1,400 ignited technical buying, but sentiment was shaky as steady outflows from exchange-traded funds trimmed their bullion holdings to the lowest in three years.
The technical outlook for gold, which has plunged more than 15 percent so far this year, is yet to improve although the safe-haven asset could find support from a rush in physical buying in Asia and other parts of the world.
"It remains to be seen which of these offsetting forces eventually wins out and exerts its influence over gold prices," said Edward Meir, metals analyst at futures brokerage INTL FCStone.
"Our guess is that the sharp bounce in retail buying will likely dominate and succeed in sending prices higher over the course of the next week or two."
Spot gold added $16.21 an ounce to $1,420.06 by 0631 GMT after rising as high as $1,427.20.
It posted its biggest-ever daily loss in dollar terms last Monday, shocking veteran investors, who see gold as portfolio protection against inflation and other market risks. Prices sank to around $1,321 on April 16, its lowest in more than 2 years.
U.S. gold futures, which often dictate the spot market, hit a high of 1,427.3 an ounce, up 2.3 percent from the previous close of 1,395.60. The June delivery later stood at $1,419.80, up $24.20.
"The aggressiveness of the fall suggests that we are still in a consolidation rather in a reversal role. For me, the $1,435 level is likely to provide resistance," said Tim Riddell, head of ANZ Global Markets Research, Asia.
"We really need to get back into the $1,500s to say that there's something more substantial taking place. The close above $1,400 may have taken the negative pressure out of gold in the near term. A close below that level will heighten the risks of new lows," Riddell added.
Gold has failed to react to tension in the Korean peninsula, with its safe-haven appeal dented by expectations the U.S. Federal Reserve will soon end its bullion-friendly bond buying programme, which could ease inflationary pressure.
The precious metal had rallied 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 would stoke inflation.
Outflows on exchange-traded funds could also indicate that investors were parking their money elsewhere, although last week's trading data from the Unites States showed that funds had injected new money into gold futures.
Hedge funds and money managers raised their net longs in gold futures and options in the week to April 16, a report by Commodity Futures Trading Commission (CFTC) showed on Friday, as new money entered the market at lower prices.
But holdings of the largest gold-backed exchange-traded-fund, New York's SPDR Gold Trust, dropped 0.88 percent on Friday from Thursday, while those of the largest silver-backed ETF, New York's iShares Silver Trust, remained unchanged for the same period.
Gold prices have also come under pressure due to Cyprus' plan to sell excess gold reserves to raise around 400 million euros ($523 million), which led to speculation other indebted euro zone countries could follow suit.
In other markets, Japanese shares powered to nearly 5-year highs and determined sellers just failed to breach the symbolic 100 yen/dollar level on Monday, even though the Bank of Japan's bold reflationary plans were endorsed by the Group of 20 gatherings in Washington.