Gold pared losses to turn higher after hitting its lowest in about two months in Europe on Tuesday as risk aversion returned to the wider markets after Goldman Sachs earnings disappointed investors.

A weak technical picture is weighing, but interest from physical buyers is helping limit losses, analysts said.

Spot gold was bid at $1,184.80 an ounce at 1322 GMT, against $1,180.35 late in New York on Monday. U.S. gold futures for August delivery rose $2.60 an ounce to $1,184.40.

Prices fell as low as $1,175.35 an ounce earlier, their weakest since late May, and were vulnerable to further losses after a break of the strong upward momentum seen earlier this year, analysts said.

Investment demand seen in May and early June is no longer there. We've broken all the supports, said Afshin Nabavi, head of trading at MKS Finance.

The market was caught too long and that's why there's selling but I don't think its going to be long lasting, there's still good demand from physical guys worldwide.

Premiums for gold bars strengthened on Tuesday after a drop in bullion prices triggered buying from jewelers across Asia, with demand especially firm from India and Indonesia.

On the wider markets, world stocks reversed early gains to decline amid renewed worries about the U.S. economic recovery, bank exposure to risky debt and disappointing earnings.

Goldman Sachs said second-quarter earnings fell to 78 cents a share compared to $4.93 a year earlier, a pretty significant slowdown in their overall business, according to one market watcher.

Among other commodities, oil fell on Tuesday, pressured by declines in the stock markets. Traders are awaiting U.S. stockpiles data due later in the day.


On the currency markets, the euro fell to a session low against the dollar while Bund futures extended gains on Tuesday after Goldman Sachs' second-quarter results.

Historically a stronger dollar has been negative for gold, as it curbs gold's appeal as an alternative asset and makes dollar-priced commodities pricier for other currency holders.

That inverse relationship has reversed since the start of the year as both benefited from risk aversion. Gold retains its positive correlation to the dollar, although... this relationship continues to soften, said UBS analyst Edel Tully.

The technical picture for gold looked neutral to bearish, analysts said, after the precious metal twice failed to sustain prices above $1,250 an ounce.

We are looking at a first line of support really being the low after the May correction, which was $1,166, said Tom Kendall, an analyst at Credit Suisse.

Commerzbank technical analysts said in a note that they expect the market to trade sideways to lower in the short term. The next few weeks' price action should give us a clearer picture with regards to the medium-term outlook, they added.

Among other precious metals, silver was at $17.54 an ounce against $17.51. Platinum was at $1,499.50 an ounce against $1,509, and palladium at $436.63 against $441.45.

(Editing by Anthony Barker)