Gold price steadied on Wednesday after dropping more than 1 percent in the previous session, but worries over when the US Federal Reserve would begin tapering its bullion-friendly stimulus continued to drag on prices.
The Fed's bond buying is tantamount to printing money and a pull back in the scheme would hurt gold's appeal as a hedge against inflation. Uncertainty over the timing of the roll back has already pushed the metal down 21 percent this year, after 12 annual gains.
"What would be extremely welcome is some clarity," said analyst Dominic Schnider of UBS Wealth Management in Singapore.
"And I think September would be the ideal time to provide clarity. Some market expectations are shifting towards a December tapering," he added.
The US economic performance remains too mixed for Fed policymakers to lay out a detailed path for reducing and eventually halting their asset-purchasing next month, Atlanta Fed President Dennis Lockhart said on Tuesday.
Spot gold inched down 0.1 percent to $1,319.31 an ounce by 0703 GMT, after a sharp 1 percent drop in the previous session that ended a four-day winning streak. Tuesday's drop was caused by strong US economic data and further import curbs by key buyer India.
US retail sales rose in July, data showed on Tuesday, pointing to an acceleration in consumer spending that could bolster the case for a Fed tapering.
The next Fed meeting is scheduled for September 17-18. Until then, markets will scrutinise data to gauge the strength of economic recovery.
"Once the taper is out, it will hit gold once more", though likely not to the same extent as drops earlier this year, Schnider said.
India hiked the import duty on gold yet again to a record 10 percent and raised excise duty on the metal, as imports jumped in July despite the government's attempts to strangle supply and curb demand to rein in dollar spending.
Gold prices in India are likely to rise this week, extending gains past their four-month high, due to the import duty hike. "Despite the expectations that gold imports may fall, India's appetite for bullion is anticipated to pick-up later in the year due to seasonal demand," HSBC analysts wrote in a note.
Analysts say this could increase further illegal gold supply into India.