LONDON (Oct 7): Gold steadied above $1,200 an ounce on Tuesday as European shares retreated, but a firm dollar, optimism over the U.S. economy and growing bets the Federal Reserve will raise rates in mid-2015 kept investors wary.

Spot gold edged down 0.1 percent to $1,205.30 an ounce by 1012 GMT. It jumped 1.3 percent on Monday in its biggest one-day gain in two months as the dollar rally paused and some physical demand emerged.

The metal had dropped 2 percent on Friday, pressured by a strong U.S. jobs report that lifted the dollar to four-year highs. It reached its weakest level since June 28, 2013 on Monday, at $1,183.46 an ounce.

U.S. gold futures were down $1.80 at $1,205.60 an ounce.

"The dollar made gold regain the $1,200 threshold but it remains to be seen if it's a flash in the pan and we expect the gold price to go lower again depending on what the Chinese do when they come back on Wednesday," Commerzbank analyst Daniel Briesemann said.

European shares fell, while the dollar was up 0.1 percent against a basket of major currencies, steadying after a near 1 percent drop in the previous session. It has posted weekly gains for the past 12 consecutive weeks.

More robust economic data could continue to boost the U.S. currency, making dollar-denominated assets such as gold more expensive for other currency holders.

The market was awaiting the release of minutes from the last Fed policy meeting on Wednesday.

"We do not expect major changes or surprises in the minutes but that could be enough to push the dollar up and therefore to weigh on the gold price," Briesemann said.

Traders 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.

"With the FOMC meeting minutes due to be released tomorrow, the presence of physical buyers offers some reassurance of a downside cushion should the Fed document contain any hawkish details," UBS said in a note.

"Over the coming days through to next week, the response of physical markets to a lower gold price will be crucial and will heavily influence gold's next direction from here."

Among other precious metals, platinum was up 1.2 percent at $1,254.24 an ounce, having fallen to $1,183.25 on Monday.

Palladium rose 0.7 percent to $765.75 an ounce, having touched its lowest level since Feb. 27 in the previous session. The metal has dropped 17 percent from $910 last month, which was its highest level since Feb. 2011.

Silver fell 0.2 percent to $17.28 an ounce. It hit its weakest level since March 2010, at $16.66, in the previous session.