Gold firmed on Tuesday as physical consumers took advantage of lower prices to buy into the metal and as China announced moves to allow greater freedom in its gold trade, but a lack of investment kept a lid on gains.
Spot gold was bid at $1,184.95 an ounce at 1334 GMT (9:34 a.m. EDT), against $1,181.25 late in New York on Monday. Earlier it rose as high as $1,188.75. U.S. gold futures for December delivery climbed $1.80 to $1,187.20 an ounce.
Prices have struggled to make headway since hitting a record $1,264.90 an ounce in June as concerns over euro zone sovereign debt levels abated. Gold exchange-traded funds saw net outflows last months, and net long positions in Comex gold futures fell.
With the rejuvenating confidence in the health of the global economy, gold's role as an investment asset seems to be fading, said Richcomm Global Services analyst Pradeep Unni.
But broader physical demand for gold has risen, particularly in Asia, as prices fell. Traders in India, the world's biggest gold consumer, are buying ahead of festivals as the stronger rupee made the metal cheaper for local buyers.
Prices below $1,180 are attractive for Indian buyers, said one Mumbai-based dealer. Meanwhile buying by Chinese jewelers and investors also pushed up premiums for gold bars to their highest in nearly two years on Tuesday.
China's central bank said in a statement it will allow its banks to import and export more gold as part of a programme to push forward the development of the country's market in the precious metal.
This is largely positive news for gold, said UBS analyst Edel Tully. It looks like an effort to further liberalize the gold market and integrate it into China's financial framework.
She added that the move highlighted the importance of the Chinese gold market both for the broader Chinese economy and for the global gold trade. China is the world's main producer and number two consumer of gold, but its trade is largely domestic.
The dollar eased further on Tuesday, making dollar-priced gold more affordable for holders of other currencies.
The euro hit a six-month high versus the U.S. unit, lifted by solid euro zone data and corporate earnings. The dollar is being pressured by concern over the U.S. economy.
Slow U.S. growth is likely to keep interest rates low. While this hurts the dollar, it may help gold longer term as it cuts the opportunity cost of holding non-interest bearing assets.
A slowing U.S. economy and the prospect of even lower yields on U.S. Treasuries could be instrumental in supporting gold prices, said HSBC analyst James Steel in a note.
Stock markets meanwhile drifted lower in Europe and the United States after a lackluster session in Asia.
A recovery in stock markets last month took the heat out of the safe-haven buying. Holdings of gold exchange-traded funds broadly declined in July, with the largest, New York's SPDR Gold Trust, seeing the biggest monthly outflow in a year.
Among other precious metals, silver was at $18.40 against $18.34, platinum at $1,586.15 an ounce versus $1,593.25 and palladium at $507.80 versus $509.70.
Palladium hit an 11-week high at $514 an ounce on Monday as appetite for industrial assets improved. The gold-palladium ratio, or number of ounces of palladium needed to buy an ounce of gold, fell to 2.3, its lowest since mid May.
(Reporting by Jan Harvey; Editing by Alison Birrane)