Gold prices rose on Wednesday as lingering tensions over Ukraine and a weaker dollar prompted bargain hunting and short covering after bullion prices earlier fell to a 12-week low.
The yellow metal was under early pressure after Russian President Vladimir Putin outlined plans for a ceasefire in eastern Ukraine, but Ukraine's prime minister later dismissed the proposal as Russia's attempt to deceive the West on the eve of a NATO summit.
But a muted response from physical buyers despite Tuesday's 1.7 percent drop and heightened geopolitical tensions suggested gold's upside could be limited, analysts said.
"We believe the lack of physical demand makes gold more vulnerable to the downside should U.S. employment data surprise on the upside this Friday," said Edel Tully, a precious metals strategist at UBS.
Spot gold was up 0.3 percent at $1,269.80 an ounce by 2:06 p.m. New York time, after having earlier hit $1,261.19, its lowest since June 17. U.S. COMEX gold futures for December delivery settled up $5.30 at $1,270.30 an ounce.
Gains in gold on Wednesday were capped by more encouraging economic news including rising new orders for U.S. factory goods, strong automobile sales and the latest Federal Reserve Beige Book report on business activities.
Physical demand in Asia was muted on Wednesday, despite the previous session's price drop, traders said, which would usually be expected to tempt price-sensitive buyers. In the retail gold market, private investor sentiment toward the metal in August slipped despite rising geopolitical tensions, according to a survey by online precious metals market BullionVault.
The Gold Investor Index, which measures the balance of customers adding to gold holdings over those reducing them, climbed to 51.7 in August from 51.9 in July. A reading of 50 signals an equal number of net gold buyers and sellers. Investment interest in gold has been soft of late.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a measure of investor sentiment, said its holdings fell 1.8 tonnes to 793.20 tonnes on Tuesday. Among other metals, palladium was down 0.5 percent at $873.40 an ounce.
The standoff between major producer Russia and Ukraine helped push prices to their highest since early 2002 earlier this week at $910 an ounce.
The euro's recovery saw the dollar index edge down 0.16 percent to 82.861.
Buoyant U.S. auto sales in August, partly driven by heavy discounting, helped support platinum group metals (PGMs), with the industry selling at an annualized pace not seen since early 2006.
Silver edged up 0.2 percent to $19.14 an ounce, and platinum climbed 0.3 percent to $1,406.20 an ounce.
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