Gold slipped lower in Europe on Wednesday, caught up in selling of stocks and other commodities after a report showed U.S. private sector employers added fewer jobs than expected in June.
The precious metal 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 banking system fuel haven demand for the metal.
Spot gold was bid at $1,236.82 an ounce at 1322 GMT, against $1,238.00 late in New York on Tuesday. U.S. gold futures for August delivery eased $4.50 an ounce to $1,237.90.
The metal earlier rose as high as $1,245.45 an ounce, but retreated after relatively low demand at the European Central Bank's latest bank refinancing operations eased some concerns over euro zone bank finances.
The better news about European banks has given a little breathing space, said Societe Generale analyst David Wilson. (We are) waiting to see the U.S. ISM numbers to see what direction we go from here.
European stocks gave up their early gains to turn negative after the ADP jobs report, while U.S. stock futures retreated from highs. The euro also pared gains after the data, which dented interest in currencies seen as higher risk.
Data showed U.S. private employers added 13,000 jobs in June, compared with a revised gain of 57,000 in May, while economists polled by Reuters expected a gain of 60,000 jobs.
The ADP jobs report is seen as an important precursor to Friday's key non-farm payrolls data, a closely watched barometer of the U.S. economic recovery.
It doesn't look good for Friday, said Kurt Karl, chief U.S. economist for Swiss Re in New York. Right now the current consensus looks a bit optimistic. Nothing is looking really upbeat on the economy and the labor market.
GOLD OUTPERFORMS IN H2
Among other commodities, oil and base metals both gave up early gains to fall after the jobs data, and remain under pressure from concerns over economic recovery.
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 $18.47 an ounce against $18.46, platinum at $1,523.20 an ounce versus $1,539.50, and palladium at $440 against $450.
(Editing by James Jukwey)