Gold traded near a five-month low on Tuesday as strong U.S. economic data stoked fears of an early end to the Federal Reserve's monetary stimulus, and the metal appeared vulnerable to further declines as more data is due this week.
Spot gold edged up 0.3 percent to $1,223.6 an ounce by 0739 GMT, but remained close to its lowest levels since early July following Monday's 2.6 percent fall in the wake of data showing U.S. factory data hit a 2-1/2-year high in November.
The strong data could bring the Fed closer to tapering a mega-stimulus programme that has boosted gold's appeal as an inflation hedge. Investors fear the Fed could begin tapering later this month when it holds a policy meeting on December 17-18.
Physical demand improved on Tuesday, without matching levels seen during price drops earlier this year, dealers said.
"No one wants to make big bets towards the end of the year, especially when people are still cautious about when quantitative easing will end," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
"This is making people sell out of gold and invest in the stock market. And liquidations by exchange-traded funds have not stopped, so this is also hurting sentiment."
Investors will scour U.S. GDP and nonfarm payrolls data later this week for clues to when the Fed will taper.
With a recovering economy and a stronger dollar, investors have been shifting money to equities. The top eight ETFs backed by gold - often seen as a safe-haven asset - have seen outflows of about 680 tonnes so far this year.
Gold has lost about 27 percent of its value so far this year.
Dealers said physical buying in Asia increased on Tuesday due to the sharp overnight drop in prices, but many consumers were still on the sidelines as they expected prices to go lower.
In China, the largest buyer of bullion, premiums of 99.99 percent purity gold climbed to about $11 an ounce from $7 on Monday on the Shanghai Gold Exchange, but still far short of the $30-$40 levels seen in April-May.
U.S. Mint sales of American Eagle silver coins in November fell 27 percent year-on-year, while the Perth Mint's sales of gold bars and coins fell by nearly a third in the same period.