"In the short term, there is some optimism that there will be a trade truce, which will take away a shadow from market confidence," said Benjamin Lu Jiaxuan, a commodities analyst at Phillip Futures. However, gold is seeing some headwind because of a gradual recovery in risk assets, as well as investors pricing in the US Federal Reserve's dovish signals, he added.
"With Fed clearly indicating that they would be receptive to the developments in the financial markets and there is a clear emerging consensus that there may not be any rate hikes, it could be a tailwind for gold," said Hitesh Jain, vice president, Yes Securities. "But, the ETF flows are not still, not bounding. On the sovereign front, there are lots of central banks buying gold. Once we see a momentum on the ETF front, that would be an inflection point for gold to move up."
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.03 percent to 796.53 tonnes on Tuesday from 796.78 tonnes on Monday. Markets also await the release of minutes from the Federal Open Market Committee's Dec. 18-19 policy meeting at 1900 GMT for cues on future interest rate increases. "Sizing up the technical picture, a top may be taking shape in gold already," said Ilya Spivak, a currency strategist at DailyFX.