Gold steadied on Thursday, with price-sensitive physical buying keeping the metal off the last session's three-month lows, but a revival in appetite for assets seen as higher risk took the heat out of safe-haven demand.
Investment remains lackluster as risk appetite sharpens, analysts said, with the world's largest gold-backed exchange traded fund reporting a hefty outflow on Wednesday.
Spot gold was bid at $1,163.05 an ounce at 1406 GMT (10:06 a.m. EDT), against $1,162.55 late in New York on Wednesday, recovering from a three-month low of $1,156.90 reached that day. U.S. gold futures for August delivery rose $1.90 to $1,162.30.
Prices have struggled to maintain higher levels since hitting a record $1,264.90 an ounce in June, with investors liquidating their gold holdings in favor of other assets as equities recovered some of the losses made earlier this year.
Gold does very well in a market disruption/risk environment, which is what we obviously saw in May and June to some extent, said Michael Lewis, head of commodities research at Deutsche Bank. Those concerns have come off the boil a bit.
On the physical side of the market, traders reported good buying for a fourth day in major gold consumer India, as they stock up ahead of festivals in the subcontinent.
But investment demand for physical bullion in Europe has softened as concerns over the stability of the financial system recede. This is set to keep prices under pressure.
Physical investment in the continental European market is very, very quiet, said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus. It is not a mass market at the moment.
He said the company had the highest turnover in gold ever in May, but that sales volumes had dropped off significantly in July. There was clearly a Greece effect this year that led from February onwards until May.
The world's largest gold ETF, the SPDR Gold Trust (GLD.P), said its holdings fell by 18.55 tonnes on Wednesday, their biggest one-day drop since April 2008.
EURO, EQUITIES CLIMB
UBS analyst Edel Tully said while gold had arrested its slide, the physical interest that had emerged to lend support to the market may not be enough to drive prices higher.
It is clear that the frenzied appetite to liquidate that prevailed earlier in the week has significantly dampened, said UBS analyst Edel Tully in a note. This suggests that a great bulk of the weak longs are now extinguished.
But this does not mean that gold will move significantly higher from here. Rather, with the selling mania under sedation, the actions in the physical market have greater importance in terms of helping to provide a price floor, he added.
On the wider markets, the dollar weakened against the euro to its lowest since early May. Sharper appetite for risk is lifting the appeal of higher-yielding currencies.
Weakness in the U.S. unit usually benefits gold, as it boosts its appeal as an alternative investment and makes dollar-priced assets cheaper for holders of other currencies.
Helping sentiment, Wall Street stocks rose at the open, while European shares .FTEU3 extended gains, boosted by strong companies' earnings.
Silver was at $17.57 an ounce against $17.44, and platinum was at $1,553.50 an ounce versus $1,531.75.
Palladium meanwhile rose to a one-month high at $487.25 an ounce and was later at $482.45 versus $465.93, helped by the weaker dollar and options-related buying.
(Editing by Alison Birrane)