SINGAPORE Gold inched up to a two-week high on Tuesday, supported by weakness in the dollar after latest data indicated the U.S. economic recovery might be losing steam.
Though the disappointing data may fuel expectations that the U.S. Federal Reserve might launch more quantitative easing, the top two Fed officials both said they saw no need for further easing but also said they do not believe the Fed should quickly move to raise rates.
Bullion ended April in the red for the third consecutive month after data showed improvement in the U.S. economy and the Fed's stance became less dovish. More monetary easing raises inflation pressure and burnishes gold's appeal as a hedge against rising prices.
"The market has been let down a few times by the Fed, but gold should benefit as the Fed is likely to hold off tightening until 2014 and Japan has eased again," said a Tokyo-based trader.
Spot gold edged up 0.2 percent to $1,667.45 earlier, its highest since April 13, before giving up the gains to trade flat at $1,664.11 an ounce by 0559 GMT.
U.S. gold was little changed at $1,665.20.
The dollar index languished near a two-month low hit in the previous session, giving some support to dollar-priced commodities.
Trading was slow as a number of markets, including China, Hong Kong, India and Singapore, were closed for the Labour Day holiday.
Investors are keeping a watchful eye on weekend elections in France and Greece and a European Central Bank meeting on Thursday, after data showed that Spain sank into recession in the first quarter.
China's official purchasing managers' index rose to a 13-month high of 53.3 in April from 53.1 in March, indicating a further expansion in the vast factory sector.
The data was supportive of precious metals with industrial applications - silver, platinum and palladium.
Spot palladium rose 0.8 percent to $683.50 an ounce, its highest since March 22, and pared some gains to $680.97.
SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, said its holdings fell 0.47 percent from the previous session to 1,278.32 tonnes by April 30, the lowest since mid-February.
Total holdings in gold ETFs fell 1 percent from a peak hit in mid-March to 70.129 million ounces by April 27 -- the lowest in nearly three months, showing stagnating investor interest in bullion.
"We would expect the most likely trigger for more private sector involvement in the gold market would be from a deterioration in the US labour market alongside a weakening in the US dollar," said Deutsche Bank in a research note.
(Editing by Sugita Katyal)