By Sethuraman N R
(Reuters) - Gold held steady on Tuesday after recovering from one-week lows hit the day before, with investors using the price correction to hunt for bargains on hopes of more economic stimulus from central banks.
Spot gold was mostly unchanged at $1,335 an ounce by 0330 GMT. The metal touched its lowest since July 29 at $1,329.55 on Monday.
U.S. gold was nearly flat at $1,340.70 an ounce.
"Gold prices are in defensive mode after suffering quite a bit on Friday. It reflects market's expectations of a rate hike by the U.S. Fed in December," Vyanne Lai, an economist at National Australia Bank.
"However, the prices are not going to weaken significantly in the near term."
Prices have been resilient in the face of a rising U.S. dollar and prospects of a rate hike as other countries are increasingly looking to raise stimulus, Lai said.
The dollar index, which gauges the greenback against a basket of six major rivals, erased earlier slight losses and edged up 0.1 percent to as much as 96.507.
The U.S. economy is at increasing risk of becoming trapped in a prolonged phase of slow growth that points to the need for lower interest rates than previously expected, Federal Reserve policymaker Jerome Powell was quoted as saying.
Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.
There were significant long positions last week and the liquidation after the nonfarm payrolls data put pressure on prices, a Hong Kong-based precious metals trader said.
"Investors are still putting more money into gold. There is something on the horizon that they should be looking, especially the U.S. elections. That will give uncertainty to the markets and will be good for gold."
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.67 percent to 973.81 tonnes on Monday.
Asian shares stood atop one-year peaks on Tuesday as a desperate search for yield drove a record inflow into emerging market funds, while oil prices tried to sustain their latest bounce.
Silver was mostly flat at $19.71 an ounce after touching a near two-week low on Monday.
Platinum slipped 0.4 percent to $1,145.
Palladium edged down 0.3 percent at $687.90, hovering near two-week low hit on Monday.
(Reporting by Nallur Sethuraman in Bengaluru; Editing by Joseph Radford and Gopakumar Warrier)
