Gold steadied in Europe on Wednesday, giving up early gains, after relatively low demand at the European Central Bank's latest bank refinancing operations eased some concerns over euro zone bank finances.
Gold is still set to be the best-performing metal of the second quarter, however, as fears over the global growth outlook and the stability of the financial system persist.
Spot gold was bid at $1,240.45 an ounce at 0944 GMT, against $1,238.00 late in New York on Tuesday, having earlier risen as high as $1,244.55. U.S. gold futures for August delivery eased 90 cents an ounce to $1,241.50.
The metal is well placed to extend gains after ending Tuesday in positive territory, after lackluster U.S. consumer confidence data fueled selling of higher-risk assets. Analysts say it may revisit last week's record high at $1,264.90.
It could easily get there if economic data is disappointing, said Citigroup analyst David Thurtell, who attributes the metal's current rise to safe-haven demand.
ISMs and U.S. payrolls over the next two days are crucial. If they are poor, we will see further equity market weakness, which should help gold.
The U.S. ADP June employment report, which precedes Friday's key non-farm payrolls data, is due at 1215 GMT.
The euro jumped and gold dipped briefly lower after the European Central Bank said it lent banks a lower-than-expected 131.9 billion euros ($161.4 billion) in three-month funds at a tender on Wednesday.
The process was closely watched, as banks face the repayment of close to half a trillion euros in 12-month funds later this week. Analysts said the relatively low demand should help ease fears over bank finances which have rocked stock markets this week.
European shares also turned positive in the wake of the tender, stabilizing after steep falls a day earlier. Asian shares earlier ended the second quarter with their worst performance since the collapse of Lehman Brothers.
GOLD OUTPERFORMS IN H2
Among other commodities, oil and base metals eked out some modest gains in early trade, correcting from the previous session's heavy losses. Both remain under pressure from concerns over economic recovery, however.
Most commodities are heading for a weak end to the first half, with many on course for their first quarterly loss in 18 months, under pressure from a toxic mix of risk aversion, equity losses and debt worries.
In this environment, gold tended to outperform. It has risen the most among metals in percentage terms in the second quarter.
Demand for physical gold as an investment vehicle remained strong, with holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rising to a record 1,320.436 tonnes on Tuesday.
In Hong Kong, premiums for gold bars, a key indicator of demand, rose. Meanwhile dealers reported scrap sales in India, the world's biggest gold market, were lackluster despite high prices as potential sellers bet on further gains.
Selling (of scrap) is at zero. For the last one week it has been like this because people are waiting for prices to hit 20,000 rupees ($429) per 10 grams, said Jitendra Kantilal, partner at Jugraj Kantilal & Co, a scrap buyer in Mumbai.
Among other precious metals, silver was bid at $18.56 an ounce against $18.46, platinum at $1,534.50 an ounce versus $1,539.50, and palladium at $452 against $450.
(Editing by James Jukwey)