After witnessing losses in the past three sessions, gold prices rebounded strongly on Tuesday as the metals remained firm in the overseas markets due to increase in physical demand.

The yellow metal prices rose by Rs 175 to close at Rs 25,700 at the bullion market as jewellers stepped up buying at lower prices.

In the international markets, the precious metal recovered from multi-month lows to trade above $1,070 per troy ounce, up $20 compared to Friday's low.

"Since the gold ETFs tracked by Bloomberg also recorded outflows yesterday (2.3 tons), short covering presumably helped drive up prices, for speculative financial investors had previously been positioned extremely pessimistically on gold," said Commerzbank Corporates & Markets in a note.

However, the prices will remain under pressure ahead of US Federal Reserve's two-day meeting on 15 and 16 December.

Overall, international gold prices registered a 7% decline in November, recording the biggest monthly decline since June 2013. The fall in metal prices is largely led a strengthening dollar in the wake of growing expectation over interest rate hike by the US central bank this month.

"Gold's negative correlation with the dollar is likely to continue because of the expectations of the US interest rates," Arab News quoted ETF Securities Martin Arnold as saying.

"We expect the dollar to peak early next year and then decline as the market gets on board with the pace of the Fed tightening cycle," Martin added.