Gold held above $1,200 an ounce on Tuesday, retaining most of its sharp overnight gains following a bout of profit-taking in the dollar, but optimism over the US economy and possibility of higher rates kept investors wary.

Spot gold slipped slightly to $1,203.30 an ounce by 0249 GMT. It had jumped 1.3 per cent on Monday in its biggest one-day gain in two months as physical buyers and bargain hunters lent support following earlier lows.

The metal is still not too far from a low of $1,183.46 reached earlier on Monday - its weakest since June last year - as a strong US jobs report dented its safe-haven appeal.

"The bounce is temporary and gold will likely go lower in the next couple of months," said ANZ analyst Victor Thianpiriya.

"The dollar has gone a long way very quickly, so we are seeing some profit taking. But the overall trend for the dollar is to continue to rally, so that will put downward pressure on gold," he said.

The dollar was beginning to show signs of stabilisation on Tuesday, gaining slightly against a basket of major currencies after a near 1 percent drop in the previous session.

The dollar index has gained for the past 12 consecutive weeks and hit a more than four-year high on Friday after a strong US jobs report.

More robust economic data could boost the dollar and reiterate expectations that the Federal Reserve would raise US interest rates in mid-2015, a move that would hurt non-interest-bearing assets such as gold.

"Technically, if the $1,180 level can hold this week, then gold looks likely to push back up to the $1,240-$1,250 region," said James Gardiner, metals trader at MKS Group said.

"However, the medium-long term bias is still towards the downside."

Markets were also eyeing the return of Chinese buyers on Wednesday. China, the top buyer of gold, has been away since the beginning of the month for its National Day holiday.

Strong buying from China could potentially boost prices.

Among other precious metals, silver slipped 0.2 per cent, tracking gold. Platinum and palladium jumped for a second straight day. - Reuters