Gold pared sharp losses on Wednesday, ending down less than 1 percent as soft U.S. private-sector job and factory data gave investors hope that the Federal Reserve would use extra stimulus to help the economy.
Gold faced pressure as an initial rally in equity markets weakened safe-haven bids. Bullion has gained 12 percent so far in August, its biggest monthly rise in nearly two years.
The metal has rallied as much as 8 percent in the past four sessions on weak U.S. consumer confidence and European sentiment data. Comments by U.S. and European policymakers on the need for easy monetary policies also underpinned bullion's investment appeal.
Investors have come to the realization that there is no expectation for any type of European rate hike any time soon, said David Meger, director of metals trading at Chicago-based Vision Financial Markets.
Low interest rates here and in Europe are another positive aspect for the gold market going forward, he said.
Spot gold was down 0.7 percent at $1,823.79 an ounce by 3:13 p.m. EDT (1913 GMT), having briefly turned higher. It was sharply off a session low of $1,812.39. Gold gained 2.6 percent on Tuesday.
U.S. gold futures for December delivery settled up $1.90 at $1,831.70 an ounce. Trading volume was 25 percent below its 30-day average.
Silver rose 0.2 percent to $41.50 an ounce.
European Central Bank President Jean-Claude Trichet on Monday suggested the bank could tone down its view on inflation pressures and keep interest rates on hold well into next year.
Physical coin demand also boosted prices as investors sought refuge in gold and silver from a global market maelstrom in early August.
U.S. Mint data showed that sales of its American Eagle gold bullion coin in August are on track to mark the third-strongest month so far this year, behind February and April.
FED, ECB MEETINGS IN FOCUS
The Fed has given no explicit signal that it will embark on a third round of purchases of government bonds to keep market interest rates low -- a measure known as quantitative easing -- meaning markets are increasingly jittery and prone to swings in response to influences such as economic data.
Minutes from the Fed's policy meeting on August 9 released on Tuesday showed the central bank discussed a range of unusual tools it could use to help the economy and more quantitative easing remains an option.
The next data point for gold is some sort of clarity out of the U.S. Fed over the next few weeks on whether they will deliver another round of quantitative easing, said Tom Price, global commodity analyst at UBS.
The Fed is scheduled to meet on September 20 to discuss options to help spur the faltering U.S. economy.
The gold price has risen nearly 50 percent since the Fed signaled in August last year it would inject more stimulus into the economy. Since then, it has also committed to leaving U.S. interest rates near zero for another two years.
Investors are also looking forward to the ECB's meeting next Thursday. The bank is expected to tone down its inflation prognosis due to new, more downbeat economic forecasts from the ECB's in-house economists.
Among platinum group metals, platinum fell 0.4 percent to $1,842.24 an ounce and palladium was up 1.5 percent at $782.
(Additional reporting by Jan Harvey in London; Editing by Marguerita Choy and Dale Hudson)