Gold prices edged lower on Wednesday as modest growth in US consumer confidence and improved home prices eased some worries of another downturn in the United States.
Prices eased after touching a two-month high on Tuesday as investors continued to worry about the prospects of the global economy and sought refuge in the yellow metal.
Still, most investors attributed the fall to a consolidation and expected prices to rise on unabated demand due to the uncertainty surrounding global growth - evident from a steady increase in the holdings in the world's largest gold-backed, exchange-traded fund.
"Gold is taking time to consolidate," said Dick Poon, manager of precious metals at Hareaus in Hong Kong. "Even if it dropped $US20 to $US30, it would still be healthy. It's likely to test $US1300 before the year end."
Spot gold prices edged down 0.3 per cent, or $US3.19, to $US1245.80 an ounce in Asian trade, easing from a two-month peak of $US1249.90 hit on Tuesday.
The 30-day moving average, at $US1208.07, was close to crossing above the 50-day moving average at $US1,209.06.
US gold futures for December delivery was down 0.1 per cent at $US1248.7 an ounce.
Holdings in SPDR Gold Trust, rose by 3.952 tonnes to 1302.508 tonnes on August 31, from 1298.556 tonnes on August 27.
"For whatever reason, the market decided to look on the data as negative. Consequently we saw safe-haven buying," said Darren Heathcote, head of trading at Investect Australia in Sydney. "Investors are reluctant to exit their long gold positions, as shown in the ETF numbers. And at same time, market seems very much focusing more negative data than positive."
Data showed modest growth in US consumer confidence in August and better-than-expected June home prices, easing some worries on a "double-dip" in the world's largest economy.
"I think there is scope for it to retrace a little if we get positive on the stock market tonight," said Heathcote of Investec.
Asian stocks rose on Wednesday, encouraged by a manufacturing rebound in China and stronger-than-expected growth in Australia.
The official purchasing managers' index (PMI) of China in August moved up one notch from the previous month, after three months of slowing growth.
The uncertainties in the economic outlook helped propel gold to its biggest monthly rise since last November in August.
And some expected gold prices to further benefit from the worries over recovery especially in the US and Europe.
"Market move is more related to foreign currency market. Investors are putting more money into commodities and less into the euro, as they want to avoid risks on the foreign exchange market," Poon said.
Poon added that physical demand has ticked up since the end of last week from India and China, among other Asian countries.
Investors are eyeing more data from the US later this week, including the non-farm payroll figures on Friday, for fresh signs of a weakening economy.
A researcher from China's central bank warned gold investors and told them to be alert to possible gold price plunges as a result of selling from overseas central banks.
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