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Gold held steady on Tuesday as the dollar weakened on expectations that the U.S. Federal Reserve will not raise rates in September, but the yellow metal's gains were limited by stronger equity markets.

The fact that gold did not move much despite disappointing U.S. nonfarm payroll numbers reflects the extensive level of speculative position in the gold markets either through futures or exchange traded funds, said Dominic Schnider of UBS Wealth Management in Hong Kong. "The idea that the Fed is going to move, if not in September but in October, is limiting people from buying gold," he said, adding that prices could drop below $1,300 in the short term, with a good resistance level of $1,275.

Gold could run into upside headwinds as the U.S. jobs number was not excessively weak and recent Fed official's comments have been hawkish, HSBC analyst James Steel said in a note.

Gold steadied as holdings in bullion-backed funds rebounded from the largest two-day drop this year.

Investors bought 0.6 metric ton of the metal through exchange-traded funds as of Friday, when prices rose as weaker-than-expected U.S. jobs data cut expectations that the Federal Reserve will raise interest rates this month. They sold 16.1 tons in the two days before that, the most since December.

Investors now own 2,017.2 tons of gold through ETFs and holdings are 1.1 percent below a three-year high set Aug. 11.

Low borrowing costs add to the appeal of owing gold, which doesn’t return a yield. Odds of the Fed raising rates this month have slid to 34 percent from 42 percent on Aug. 26, according to Fed funds futures tracked by Bloomberg. Traders see a 61 percent chance of a move by December.

Reference: Reuters, Bloomberg