Gold rose briefly back above $1,200 an ounce on Thursday as financial markets rallied broadly, with U.S. stocks jumping 1 percent at the open, European shares higher and oil prices climbing 2.3 percent.
The precious metal quickly slipped back below that level, however, as it struggled to break out of the relatively tight range it has kept to ahead of the results of European bank stress tests on Friday.
Spot gold was bid at $1,198.90 an ounce at 1406 GMT, against $1,191.80 late in New York on Wednesday. U.S. gold futures for August delivery rose $7.50 to $1,199.30.
Gains in gold, which is often seen as a haven from risk, have been limited by expectations that most banks will pass the stress tests, which will assess how banks will fare if economic conditions worsen, and from a retreat in sovereign risk fears.
There is no apparent trigger for gold to move higher at the moment, especially with the situation in Europe a bit more under control, said Bank of America-Merrill Lynch analyst Michael Widmer. Against that backdrop, we have been drifting.
He said if bank stress test results reassure the market, it would have a more positive impact on the cyclical metals like the base metals, and a less positive impact on gold.
On the wider markets, U.S. stocks jumped at the open and European shares rose on Thursday as confidence was boosted by upbeat earnings, while banks rose ahead of the stress test results. .EU .N
Rising equities and better-than-expected European data lifted appetite for risk, weighing on the dollar, which fell 0.9 percent against a basket of currencies .DXY.
Sharper risk appetite and a retreat in concerns over the health of the European financial sector has pressured gold from the record $1,264.90 an ounce it hit in June. An attempted move back up to $1,200 was short-lived on Wednesday.
The way we got rejected yesterday at $1,200 indicates that there are sellers out there who are looking for an opportunity to reduce exposure, said Saxo Bank senior manager Ole Hansen.
GOLD AWAITS DIRECTION
Gold is struggling for direction as formerly strong concerns over debt levels retreat in the euro zone's Portugal, Italy, Ireland, Greece and Spain.
That is not to say that the situation in Europe is no longer important for gold prices, said Natixis in a note. It can drive gold prices lower or higher, dependent on whether the situation is genuinely improving or whether this is merely a hiatus before a subsequent crash.
But in a period of relative calm in Europe, the gold market has lost one of its previously clear price signals. We are therefore left searching for a new anchor for gold prices.
In supply news, Russian miner Petropavlovsk (POG.L) said it expects annual gold output to be at the lower end of the previous guidance of 670,000 to 760,000 ounces after first-half production fell 26 percent.
Among other precious metals, silver was at $18.12 an ounce against $17.77, platinum at $1,522.60 an ounce against $1,521, and palladium at $453.15 against $449.50.
The world's number three platinum producer Lonmin, which operates in South Africa, said its third-quarter refined platinum sales nearly halved following the closure of its main furnace.
Standard Chartered said in a note that it expects constraints on South African supply to persist. Platinum group metals output in April was weak, it said.
(Reporting by Jan Harvey; editing by Alison Birrane)