Gold held above $1,180 an ounce in Europe on Tuesday as lower prices tempted some buyers back to the market after prices slipped to two-month lows in the previous session, but the technical picture remained weak.
Gold has been pressured by concerns over deflationary signals from the United States and other economies, analysts said, while a recovery in appetite for assets seen as higher risk has also deflected some investment from the precious metal.
Spot gold was bid at $1,180.15 an ounce at 0933 GMT (5:33 a.m. EDT), against $1,180.35 late in New York on Monday. U.S. gold futures for August delivery eased $1.40 an ounce to $1,180.50.
Spot prices slipped as low as $1,177.15 an ounce on Monday, and remain vulnerable to further losses after a break of the strong upward momentum seen earlier this year.
After the fall on Friday and disappointing close yesterday it would be normal to see a bit of a bounce from here, said Tom Kendall, an analyst at Credit Suisse. We are looking at a first line of support really being the low after the May correction, which was $1,166.
Gold is reacting at the minute primarily to the deflationary story and disappointing figures, particularly out of the U.S., over the last week or so.
Although this was weighing in the short term, he said, any further measures to combat weak growth via further quantitative easing should in the longer term be positive for gold.
Sharper appetite for assets seen as higher risk also weighed on gold a touch. Stock markets climbed in early European trade after rising in Asia, while world stocks .MIWD00000PUS climbed nearly 0.5 percent.
The euro also climbed, touching a two-month high against the dollar as euro zone sovereign debt concerns receded and soft U.S. economic data weighed on the greenback.
Historically a weaker dollar has been positive for gold, as it boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper 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.
Risk appetite has been helped by a spate of well-received U.S. corporate earnings reports from major companies like General Electric, Bank of America and JPMorgan last week.
So far into the earnings season the news has been relatively upbeat, but it is early days, said Credit Agricole in a note.
What has been interesting is the divergence between earnings and economic data, with the weakness in the latter raising questions about how long the former can stay upbeat.
Among other commodities, oil prices rose toward $77 a barrel as rising stock markets boosted buying and as observers forecasted a fourth consecutive weekly drop in U.S. crude inventories. Base metals climbed.
The technical picture for gold is now looking neutral to bearish, analysts said, after the precious metal twice failed to sustain prices above $1,250 an ounce.
The next few weeks' price action should give us a clearer picture with regards to the medium-term outlook but sideways to lower trading will probably be witnessed now, said Commerzbank in a note.
On the physical side of the gold market, premiums for gold bars strengthened on Tuesday after a drop in bullion prices triggered buying from jewelljewelersers across Asia, with demand especially firm from India and Indonesia.
Among other precious metals, silver was bid at $17.54 an ounce against $17.51. Platinum was at $1,503 an ounce against $1,509, and palladium at $441 against $441.45.
(Reporting by Jan Harvey; Editing by Alison Birrane)