Gold rose on Monday, supported by strong physical buying after its fall last week to the weakest price in two years, but sentiment was shaky as bullion holdings in exchange-traded funds were trimmed to the lowest in three years.
The technical outlook for gold, which has plunged more than 15 percent so far this year, has yet to improve despite the physical buying in Asia and elsewhere.
Spot gold rose 1.5 percent to $1,424.50 an ounce by 0937 GMT after reaching a session high of $1,427.20, also its strongest level for one week.
"We've been seeing some fairly good buying from the physical market," Citi analyst David Wilson said. "In terms of consumers, we saw some good buying out of India and much higher turnover in China and Shanghai, which has definitely helped."
However, he sees the gains as short-lived as inflation, a key driver of gold, eases.
It posted its biggest-ever daily loss in dollar terms last Monday, shocking 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 two years.
U.S. gold futures hit a high of $1,427.3 an ounce, up 2.3 percent from the previous close of $1,395.60. The June delivery was $1,423, up almost 2 percent.
"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.
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.
Outflows from 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.
"Given the speed and magnitude of the price decline on Friday and Monday (of last week), which is captured within these data, it would appear any positions of size that were instigated were quickly closed, whether it was long liquidation followed by fresh longs at lower levels or fresh shorts covered subsequently," Barclays said in a note to clients.
Gold has failed to react to tension in the Korean peninsula. The assets appeal as a safe haven has been dented by expectations the U.S. Federal Reserve could 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.
Gold prices have also come under pressure due to a plan by Cyprus 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.
Other precious metals benefited from gold's gains, with silver up 1 percent to $23.40 an ounce and palladium 0.9 percent firmer at $678. Platinum was up 0.7 percent at $1,431.49 an ounce.