Gold Prices Hold Gains

Spot gold held onto gains made in the previous session on Tuesday, but hopes that a Franco-German summit will make progress to help quell the region's sovereign debt crisis are expected to keep a lid on prices.

French President Nicolas Sarkozy and German Chancellor Angela Merkel meet in Paris from 1400 GMT to discuss what measures they can take to contain Europe's debt crisis, which is now spreading to the continent's core. A joint news conference is due at 1600 GMT.

"There seems to be quite a bit of optimism before the meeting which has sent the euro to a three-week high to the dollar," said Ong Yi Ling, an analyst at Phillip Futures.

"So long as investors remain optimistic, chances are gold will trade a bit lower."

Leaders could potentially explore the issues such as expanding the European Financial Stability Fund (EFSF) or issue joint euro bonds, but any speedy agreement will be unlikely as Merkel is under pressure from home to resist these measures, Ong added.

Spot gold was little changed at $1,766.39 an ounce by 0650 GMT, after rising 1 percent in the previous session.

U.S. gold gained 0.6 percent to $1,769.10.

Technical analysis echoed the sentiment in the market, and suggested gold could retrace to $1,750 an ounce, said Reuters market analyst Wang Tao.

The euro eased from the previous day's three-week high, with the focus on whether a Franco-German summit will lay the groundwork for further measures to help quell the euro zone's sovereign debt crisis.

Southeast Asia's physical gold market took a breather from the buying frenzy on Monday when prices saw an intraday drop of 1 percent, dealers said.

"I was overwhelmed with physical demand out of Indonesia and Thailand, but it has cooled off a bit today," said a Singapore-based dealer, adding that there was some light demand from Vietnam after the country approved 5 tonnes of gold imports last week.

Traders and analysts expected gold to weaken in the short term after a strong rally in July pushed bullion to consecutive record highs, which would provide investors a more attractive entry point.

Gold's longer-term allure remains untarnished, as global growth outlook continues to be cloudy and a low-interest rate environment will keep investors interested in gold.

The largest gold fund players including hedge fund titan John Paulson stuck with their bullion bets in the second quarter, opting not to follow George Soros who further reduced his gold ETF holdings.

Holdings of the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, stood at 1,260.173 tonnes by Aug. 15, unchanged from Friday, off a one-year high of 1,309.922 tonnes hit last week.

Spot platinum gained 0.6 percent to $1,814.35, on course for its sixth consecutive session of gains, its best run since January. It hit a two-month high of $1,820.75 earlier.