Spot gold has gained 3 percent over the past six sessions, mostly due to a fall in equities after record 2013 gains.
The metal's strength followed a 28 percent drop last year, its largest in more than three decades, as the U.S. Federal Reserve announced plans to unwind ultra-loose monetary policy.
Analysts said that as the macroeconomic backdrop brightens, prices still look vulnerable to further losses, with the U.S. stimulus tapering starting in January, the possibility of a stronger dollar and low inflation likely to continue to deter investor interest.
In the short term, analysts said prices may gain some support from funds buying gold to rebalance their portfolios, after last year's price drop reduced the metal's value relative to other assets.
"The index rebalancing may keep having an impact in the next few sessions but by mid-January that impact should be gone," BofA Merrill Lynch analyst Michael Widmer said.
"I think the labour market report in the U.S. is going to be important, but overall nothing has really changed in the gold market and people are still wondering why one would want to hold the asset."
Spot gold was up 0.1 percent at $1,239.10 an ounce by 1057 GMT, not far from its three-week peak of $1,248.30 hit in the previous session.
U.S. gold futures for February delivery were unchanged at $1,238.40 an ounce, after unusually sharp movements in the previous session, when prices fell 3 percent for a brief period before recovering.
European shares steadied on Tuesday after fresh falls in Asia left stocks there at a near-four month low and disappointing U.S. data had weighed on Wall Street.
The dollar rebounded 0.1 percent against a basket of currencies after overnight weakness due to disappointing U.S. services sector data that raised concerns about the country's economic growth.
Traders will now focus on U.S. nonfarm payrolls and trade numbers on Friday, which will be preceded by Wednesday's minutes of the Federal Reserve's December policy meeting. They are likely to draw added interest after Monday's confirmation of Janet Yellen as the central bank's new head.
Physical demand from top buyers China and India picked up over the past sessions.
Indian officials are in talks to cut a record high import duty on gold and relax rules on exports, government sources said, after the measures helped narrow the country's trade deficit but now threaten to encourage smuggling.
In China, premiums for 99.99 percent purity gold on the Shanghai Gold Exchange were steady at about $20 an ounce over London prices.
Silver fell 0.4 percent to $20.04 an ounce, having risen to a four-week high of $20.33 in the previous session. The metal dropped 36 percent in 2013, its worst annual performance since at least 1982.
Spot platinum was down 0.1 percent to $1,410.99 an ounce. It rose to a seven-week high of $1,420.75 on Monday.
Platinum's premium over gold was holding just below a 4-1/2 month high hit in the previous week, with the ratio showing un uptrend over the past year, due to an improving macro environment, which raises prospects of higher demand for platinum.
Palladium was flat at $735.00 an ounce.