Gold rose for a second straight session on Tuesday, strengthening above $1,200 an ounce after cautious comments from U.S. Federal Reserve policymakers prompted a pullback in the dollar.
Dennis Lockhart, head of the Atlanta Federal Reserve, said late on Monday that he was in no rush to drop the Fed's pledge to keep interest rates near zero for a "considerable time," while San Francisco Fed chief John Williams said the phrase was still appropriate.
Spot gold rose 0.6 percent to $1,209.98 an ounce by 1235 GMT. It jumped 1 percent on Monday on technical buying after the dollar eased from a more than five-year high.
U.S. gold futures rose 1.3 percent to $1,210.50 an ounce.
"The move since yesterday seems to be reflecting some nervousness in equity markets and the dollar," ABN Amro analyst Georgette Boele said.
"It looks like support is around $1,150 and $1,180 at this point, but eventually prices are going to break much lower, we are targeting $900 by the end of next year, based on the dollar and also on the relatively positive interest rate outlook."
The dollar fell 0.3 percent against a basket of major currencies, while European shares hit a two-week low.
A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies, while investor aversion to risk increases bullion's attraction as an alternative investment.
Further gains in gold prices would depend on the dollar and the timing of the Fed's move to raise rates. Higher rates would decrease demand for non-interest-bearing bullion.
"The fundamentals regarding a strong economy haven't changed and people are still very much bearish on gold because it looks like a rate hike will come soon," said a trader in Sydney.
Bearishness was reflected in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund. Its holdings, seen as a proxy for investor sentiment, resumed declines after a brief uptick and were close to six-year lows on Monday.
Gold's firmness was kept in check by softer oil prices, which have recently hurt gold's appeal as a hedge against oil-led inflation. Benchmark Brent crude slipped to its lowest level in five years on Tuesday.
Cues for the day will also come from U.S. data that could indicate the strength of economic recovery and its impact on monetary policy.
In physical markets, prices in China - the top consumer of the precious metal - slipped to a discount of about 50 cents an ounce on Tuesday before recovering to trade at a slight premium.
Buyers of jewelry and gold bars have been cautious due to the recent price swings. Although unable to move the market significantly, strong physical purchases usually provide a floor to falling prices.
Platinum rose 0.6 percent to $1,235.75 an ounce. Silver was up 1.1 percent at $16.51 an ounce, and palladium rose 1 percent to $804.10 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; Editing by Michael Urquhart and Pravin Char)