Gold was trading near its highest in a month on Tuesday after gaining 3 percent the session before and breaking through key resistance at the $1,300 level.
A weaker dollar supported bullion prices, but stricter Indian import rules and continued outflows from exchange-traded gold funds could cap gains.
Spot gold was down 0.08 percent at $1,334.01 an ounce by 0020 GMT, while U.S. gold fell $2.50 to $1,333.50.
Gold hit a one-month high of $1,338.91 on Monday, as speculators fearing a reversal of the recent downward price trend rushed to buy back bearish bets.
Bullion prices have garnered support from Federal Reserve chief Ben Bernanke's assurance last week that the U.S. central bank would be careful in scaling back its $85 billion monthly bond purchases.
September is still the most likely time for the Fed to announce that it will trim its monthly bond purchases, according to a Reuters poll taken after Bernanke's congressional testimony last week.
Analysts have slashed their 2013 gold and silver price forecasts after sharp falls earlier this year and expect them to remain weak in 2014 as the United States reins in monetary stimulus, a Reuters poll showed on Monday.
India's central bank moved to tighten gold imports again on Monday, making them dependent on export volumes with an eye to reducing a record current account deficit, but offered relief to domestic sellers by lifting restrictions on credit deals.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.13 percent to 931.26 tonnes on Monday.
A group of indigenous Chileans asked the Supreme Court to revoke the environmental license of Barrick Gold Corp's Pascua-Lama gold mine because it seeks a total re-evaluation of the project, a lawyer representing the group told Reuters.
The dollar was nursing broad losses in Asia on Tuesday as soft U.S. housing data offered an excuse to sell, while a sharp fall in Portuguese bond yields provided a boost to the euro.
World stock prices rose to near five-year highs on Monday on growing investor optimism after Japanese Prime Minister Shinzo Abe strengthened his power base, adding weight to his plans to jumpstart the world's third-biggest economy.