Gold prices recovered some early losses on Thursday after European stock markets fell, snapping a three-day rally, and as investors weighed up the prospect of a fresh round of quantitative easing from the U.S. Federal Reserve.
The metal had posted its strongest monthly gain in August since November 2009 as soft economic data fueled speculation the Fed would print more money to shore up the flagging economy. Trade has been volatile in the absence of clear direction.
Spot gold eased 0.1 percent to $1,821.10 an ounce at 1115 GMT. It slipped as low as $1,814.34 an ounce overnight in Asia but recovered as weakness in stock markets pointed to scant appetite for assets seen as higher risk in Europe.
We now seem to have stabilized and are awaiting (President Barack) Obama's comments next week and the extended Fed meeting later in the month, said Credit Agricole analyst Robin Bhar. The market I think is betting on further policy support for the economy, which would be positive for gold.
There is a lot of uncertainty out there, and all the drivers for gold -- the financial uncertainties, the economic imbalances, the debt burdens, the currency debasement, the deflation/inflation debate -- are still positive in the short to medium term.
These factors have sparked a 29 percent rise in gold prices this year, driving the precious metal to a record $1,911.46 an ounce early last week before its sharp correction.
As well we losses on equity markets, the euro fell across the board as poorly received euro zone economic data weighed.
A consequently stronger dollar would usually benefit gold, but the once close inverse link between the two assets has weakened in recent years.
Periods of severe stress may reverse the long-term relationship between gold and the U.S. dollar, said Koen Straetmans, a senior strategist at ING Investment Management.
The precious metal may prove a favorable hedge under these circumstances, in particular for euro-based investors.
Investors entered September in a bearish mood, with Reuters asset allocation polls on Wednesday showing leading fund companies were holding less than 50 percent of their mixed-asset portfolios in stocks.
U.S. gold futures for August delivery were down $7.60 an ounce at $1,824.10.
Investors are awaiting a raft of data over the next few days including U.S. jobless and productivity readings at 1230 GMT, construction spending and manufacturing numbers at 1400 GMT and Friday's key non-farm payrolls report.
Weak data would make further U.S. easing more likely.
Among other commodities, oil prices eased after Brent crude earlier touched a one-month high, pressured by weak euro zone manufacturing data, while base metal slipped on the firmer dollar and a drop in Chinese export orders.
Silver prices were little changed, in line with gold, up 0.2 percent at $41.56 an ounce. Data released on Wednesday showed a rise in Mexican silver output in June of just over 300,000 kg.
Mexico has now overtaken Peru as the world's largest silver producer, HSBC said.
According to the executive director of the Mexican Mining Chamber, Sergio Almazan, several new large silver mine projects will reinforce Mexico's position as a leading silver producer, the bank said in a note.
Unlike gold and the PGMs, silver mine production has been robust, with most producers increasing output. We expect this to help restrain silver gains and to play a role in widening the silver-gold ratio back to 50:1 from its current 44:1.
Elsewhere, spot platinum was flat at $1,839.24 an ounce, while spot palladium fell 1 percent to $770.53 an ounce.
Palladium was one of the weakest performers among the metals in August, falling 7.3 percent versus a 1.6 percent rise in platinum prices and larger gains in gold and silver.
Swiss bank UBS said in a note that it expected the auto-catalyst metal to benefit from stronger growth in emerging market car sales. The pick-up in EM auto sales relative to developed markets offers fundamental support for palladium down the road, it said.