Gold prices held steady on Tuesday, with investors looking out for more clues from the eurozone on whether the bloc will come up with a concrete plan to solve the debt crisis, after Germany cautioned against any definitive solution.
Germany said on Monday that a summit of EU leaders next Sunday would not produce a miracle cure for the eurozone's sovereign debt crisis, a warning that pushed down markets after a rise in the past week on expectations of a breakthrough.
A satisfying game plan is likely to lift the sentiment in risk assets and benefit gold, which has moved in tandem with equities and other commodities in recent weeks.
But a swift cure would be difficult to achieve, given the disparity in economic and social development in the 17 eurozone nations, and this could help burnish gold's safe-haven appeal.
"It will not be the end of problems there," said Mark Pervan, Global Head of Commodity Research of ANZ. "There will be residue risk in the market, and the market would have to long gold."
Spot gold was nearly flat at $1,671.05 an ounce by 0302 GMT, easing from a three-week high of $1,694.60 hit in the previous session.
US gold GCcv1 edged down 0.2 percent to $1,672.80. If European nations failed to produce a concrete deal, the dollar could benefit, denting sentiment in commodities. The greenback's 6 percent rise last month contributed to a dismal 11-percent drop in spot gold prices during the period, the biggest monthly loss since October 2008.
"The investment case in gold remains very strong," said Cameron Alexander, senior metals analyst at Thomson Reuters GFMS, adding that slow global growth, low interest rates in most markets and concerns about high inflation will help boost interest in bullion.
"Towards the end of the year we will see gold make up lost ground we've seen in recent weeks and possibly move higher."
The US Federal Reserve should step up its campaign to boost a withering economy with a vow to keep interest rates at zero until the jobless rate falls below 7 percent, a top Fed policymaker said on Monday.
China reported 9.1 percent annual economic growth for the third quarter, easing from 9.5 percent from the previous quarter, as tight domestic monetary policy and easing foreign demand crimped activity.
Strong seasonal physical demand from China and India is expected to support gold prices in coming months, as India's gold buying traditionally peaks in late October during Dhanteras and Diwali festivals.
"We continue to expect gold prices to be cushioned amid the seasonally strong period for physical demand, which remains key before investment demand returns to the driver's seat," said Barclays Capital in a research note.
"As confidence over Europe remains fragile and concerns over China build amid a low interest rate environment, investor appetite is set to remain positive, barring the need for liquidity."