Gold closed Tuesday at US$1,247.50/oz on the London Bullion Market, slightly up from US$1,243/oz in the previous trading session.
Despite the rise, gold sentiment remains bearish with continued ETF outflows and subdued physical buying.
In the ETFs tracked by FastMarkets, holdings are now at their lowest since 2009 at 1,864.51t after shedding another 3.74t on Monday (Nov 25).
Meanwhile, physical demand for gold from Asia has not reacted the lower gold price in the same way it did earlier this year, according to Standard Bank's Walter de Wet. "We therefore doubt that gold shorts will cover their positions sufficiently to push gold above US$1,300/oz," he wrote in a note.
The All India Gems & Jewellery Trade Federation estimates imports in November at 5-10t, compared with 40t last November, according to Commerzbank. The tight supply has driven up premiums which are currently at US$120-US$130/oz. This could rise to US$150-US$200/oz in the next few weeks, the bank said in a note.
"Gold tested levels below US$1,230/oz three times overnight but couldn't maintain the break lower," ANZ said in a note cited by FastMarkets. "Given the market is still positioned short, we can continue to expect bouts of volatility. The overnight move does little to change our view that the market will continue to trade in a weak fashion while physical demand remains lacking."
UBS downgraded its short-term gold price targets to US$1,180/oz for one month and US$1,100/oz for three months.
The downward review was due to weak gold sentiment which capped price rises, even in the face of US dollar weakness. The bank also said that market participants are focusing on the expected tapering of the Federal Reserve's quantitative easing program, and that physical buying is subdued.
Indian gold demand has been particularly weak due to government restrictions on gold imports.
UBS also lowered its short term targets for silver to US$18/oz for one month and US$16/oz for three months.
Silver closed Tuesday at US$20.11/oz on the LBM.
With the US Thanksgiving holiday coming up (Nov 28-29), market activity is likely to slow down. Participants are concentrating on the US employment report due out December 6, which will provide more guidance as to the timing of tapering.
Consensus forecasts see tapering starting in March, but if more than 200,000 new jobs are added in November, the Fed might take action in December, according to de Wet.