Gold held near $1,200 an ounce on Friday as some buyers were tempted back to the market by the metal's fall to six-week lows as the dollar softened, but recovering risk appetite is undermining its haven appeal.
Spot gold was bid at $1,197.55 an ounce at 0831 GMT (4:31 a.m. EDT), against $1,196.48 late in New York on Thursday. U.S. gold futures for August delivery firmed $1.70 to $1,197.80.
The metal has recovered after falling to its lowest since late May on Wednesday at just above $1,185 an ounce, but has since struggled to make new headway.
A return in appetite for assets seen as higher risk after a cautiously upbeat view of the euro zone's recovery from the European Central Bank and positive U.S. data released Thursday is limiting demand for gold as a safe haven, analysts said.
Sentiment is certainly changing and we should see thin trading with gold lacking clear direction unless risk aversion returns, said VTB Capital analyst Andrey Kryuchenkov.
The exodus is finished in the short run... but more robust gains on equity markets could trigger a little more downside, he added.
European shares rose in early trade on Friday, tracking gains on Wall Street, which itself was boosted by jobless claims falling and a handful of large retailers reporting solid sales. Asian shares overnight posted gains.
On the currency markets, the euro hit a two-month high against the dollar and rose broadly on Friday as improving risk demand prompted European banks to pick up the currency.
The euro has pared some of the hefty losses made against the dollar this year in recent weeks, as concerns over euro zone sovereign debt levels receded.
Trichet's press conference yesterday may have been uneventful but it ensured that the slowly rising enthusiasm for the euro was not interrupted, said Credit Agricole in a note.
MAIN ETF SEES OUTFLOW
Elsewhere holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, slipped again on Thursday, dipping 0.445 tonnes to 1,316.036 tonnes.
The fund's holdings have retreated 4.4 tonnes from the record 1,320.436 tonnes they stood at in late June, as the safe haven-related inflows seen in recent months dried up.
After recent sessions' selling, gold is now looking vulnerable from a technical perspective, according to analysts who study charts of past price moves to determine the next direction of trade.
Gold is pressuring trendline support from the February lows at $1,183 and is also capped by the $1,205/15 resistance area, said Barclays Capital. Such price action is bearish.
Industrial commodities firmed, meanwhile, with oil climbing nearly 0.5 percent in early European trade and copper up around 2 percent at its session highs. These assets are benefiting from firmer risk appetite and the weaker dollar.
Among the more industrial precious metals, silver prices held broadly steady in line with gold, bid at $17.85 an ounce against $17.89 late in New York on Thursday.
Holdings of the largest silver-backed ETF, the iShares Silver Trust, have also dropped just over 25 tonnes since the end of June to 9,151.78 tonnes.
Platinum was at $1,520.60 an ounce against $1,517, while palladium was at $446 against $445.50.
Buying interest overnight and in Asia has seen platinum recoup yesterday's weakness, as has palladium, said James Moore, an analyst at TheBullionDesk.com, in a note.
Short-term we expect further direction from broader industrial commodity sentiment while favorable fundamentals will provide ongoing background support, he added.
(Reporting by Jan Harvey; Editing by Alison Birrane)