Gold rose in Europe on Tuesday as physical consumers like jewelers took advantage of lower prices to buy into the precious metal, and as China announced moves to allow greater freedom in its gold trade.
Spot gold was bid at $1,183.65 an ounce at 0943 GMT, against $1,181.25 late in New York on Monday. U.S. gold futures for August delivery rose 40 cents to $1,185.80 an ounce.
China's central bank said in a statement it will allow its banks to import and export more gold as part of a program to push forward the development of the country's market in the precious metal.
This is largely positive news for gold, said UBS analyst Edel Tully. It looks like an effort to further liberalize the gold market and integrate it into China's financial framework.
She added that the move highlighted the importance of the Chinese gold market, both for the broader Chinese economy and for the global gold trade. China is the world's biggest producer and consumer of gold, but its trade it largely domestic.
Broader physical demand for the metal rose in Asia, with traders in India, the world's biggest bullion consumer, continuing to buy ahead of festivals as the stronger rupee made the metal more affordable for local buyers.
Prices below $1,180 are attractive for Indian buyers, said one Mumbai-based dealer.
Buying by Chinese jewelers and investors pushed up premiums for gold bars to their highest in nearly two years on Tuesday.
Lower prices boosted buying from other key demand centers, with retail gold demand volumes in Abu Dhabi and Dubai rising 10 percent in July, and Turkish imports climbing by more than a third in the same month.
The dollar eased further on Tuesday, making dollar priced gold more affordable for holders of other currencies.
The euro hit a 3-month high versus the U.S. unit, supported by solid euro zone data and corporate earnings. The dollar is being pressured by concern over the U.S. economy.
If U.S. growth is slow, interest rates are likely to stay low. While this is likely to pressure the dollar, it could prove supportive for gold in the longer term, as it reduces the opportunity cost of holding non-interest bearing assets.
A slowing U.S. economy and the prospect of even lower yields on U.S. Treasuries could be instrumental in supporting gold prices, said HSBC analyst James Steel in a note.
Stock markets drifted lower in Europe after a lackluster session in Asia.
A recovery in stock markets last month took the heat out of the safe-haven buying that drove prices to a record $1,264.90 in June partly due to euro zone sovereign debt levels.
Holdings of gold-backed exchange-traded funds broadly declined in July, with the largest, New York's SPDR Gold Trust, seeing the biggest monthly outflow in a year.
Among other precious metals, silver was flat at $18.34, platinum at $1,581.80 an ounce versus $1,593.25 and palladium at $505.60 versus $509.70.
The white metals have outperformed gold recently as the signs of economic recovery which dampened haven demand for gold boosted hopes demand will grow for industrial commodities.
Palladium in particular rallied, hitting an 11-week high at $514 an ounce on Monday. The gold-palladium ratio, or number of ounces of palladium needed to buy an ounce of gold, fell to 2.3, its lowest since mid-May.
(Reporting by Jan Harvey; Editing by Sue Thomas)