Gold rose above $1,200 an ounce in Europe on Wednesday as a swell of fund buying put the price on track for its sixth successive daily gain.
A soft performance on the global equity market and expectations for a rise in Chinese demand were early drivers to the day's rally, although U.S. private sector jobs data pushed up the dollar and diffused some of gold's safe-haven appeal.
Spot gold rose to a high of $1,202.50 an ounce, its strongest since July 23, and was bid at $1,201.35 an ounce at 1353 GMT versus $1,185.35 late in New York on Tuesday. U.S. gold futures for December delivery rose $16.30 to $1,203.80.
Much of the concern over the euro zone debt burden and the outlook for the global economy has been allayed by an upbeat earnings season and the financial safeguards put in place to protect the banking sector, thereby removing vital catalysts that propelled gold to all-time highs in late June.
But with consumer demand now flourishing in several key regions such as India and China, analysts expect gold to remain firm this year.
This is not suddenly the spring board to $1,300 an ounce. This market is going to pull back and then rally, said Peter Hillyard, head of metal sales at ANZ.
I'm one of those that believes that by year-end we will see gold with a $1,300-handle ... that doesn't mean that it can't go back to $1,190 or $1,185 on its way there, he said.
Weak U.S. consumer spending and housing data in recent days have fueled speculation the U.S. Federal Reserve may further loosen monetary policy at its August 10 meeting. This may favor gold, which tends to benefit from a looser economic policy.
Concerns over the pace of the recovery in the United States pushed the dollar toward 15-year lows against the Japanese yen , while U.S. stocks edged higher after the payrolls processor ADP Employer Services said private employers added 42,000 jobs in July, compared with a revised gain of 19,000 in June.
CHINA GOLD TRADE
The gold market also continued to take support from news that China had taken steps to liberalize its gold trade.
China said on Tuesday it will allow more domestic banks to export and import gold as part of steps to encourage more liquid trade, which could underpin the country's growing private demand for the metal.
The international gold market is now paying a lot more attention to China's gold demand, not just from an official reserve asset perspective, but also private demand, UBS analyst Edel Tully wrote in a note.
Behind India, China is the second-largest physical consumer, she added. Therefore any step to integrate, liberalize, and expand this market should, in time, foster a rising appetite for gold.
Gold's rise this week has made technical analysts slightly more positive toward the metal, although they remain cautious until a clearer trend emerges.
Daily momentum oscillators are turning bullish, but given the significant decline in the dollar, recent price gains have been lackluster, said Barclays Capital in a note.
As such, for the time being we are maintaining our bearish bias, but the confidence in this view is falling sharply. Indeed a closing break of the 21-day (now $1,190) would move us to a neutral bias as a choppy range unfolds.
Elsewhere platinum was at $1,586.15 an ounce versus $1,576.50 and palladium at $504.50 against $498.35.
The metals are chiefly consumed by the car industry for use in autocatalysts. Data released on Tuesday showed U.S. auto sales rose 5 percent in July in an uneven recovery. The rise was the smallest in percentage terms since November.
Silver was at $18.62 an ounce against $18.42.
(Editing by Alison Birrane)