Gold slipped on Thursday, ending a two-day rise, as U.S. jobless claims declined more than expected, denting bullion's case as a safe-haven investment.
Silver also pared early gains, but remained on course for a 6 percent rise this month, which would be its strongest monthly increase since April.
New U.S. jobless claims fell more than expected last week but were too high to signal a shift in a weak labour market that is constraining economic growth.
The jobless claims data has raised some hopes. There is reduced risk aversion and less concern about the economy, because we certainly had some dismal data earlier in the week, said Peter Buchanan, senior economist at CIBC World Markets in Toronto.
Buchanan also cited better German consumer sentiment and better U.K. retail sales data on Thursday.
Spot gold was at $1,238 an ounce by 7:20 p.m. British time from $1,239.00 the day before. Earlier in the session, it hit a high of $1,244.00, its strongest level since June 30. U.S. gold futures settled down $3.60 an ounce at $1,237.70.
A spate of lacklustre U.S. economic indicators, including the durable-good orders, new and existing home sales data, all showed signs of a stalling economic recovery, raising fears of a double-dip recession.
Gold struck a lifetime high of $1,264.90 in June, partly driven by worries about a slowdown in the U.S. economy and a cooling in several major engines of growth, such as China.
Everybody was optimistic on the economic front back in midsummer, and hence gold was backing off as people were putting risk back on the books and unwinding safe-haven positions, said Simon Weeks, head of precious metals at Scotia Mocatta.
Disappointing economic data this month that started with a surprisingly large fall in July job growth has prompted the Federal Reserve to renew its drive to keep interest rates low, thereby creating a favourable environment for gold.
Gold's five-percent gain so far in August was also powered by technical buying, analysts said.
Hans Kashyap, president of California-based Analytics Research Corp, said that December gold's rise on Tuesday was a bullish outside day reversal, confirming a rising trend starting from late July at $1,160 an ounce.
Kashyap said the fact that December found support at $1,210, a technical breakout level going back to Aug 12, suggested gold's next move would be a test against its highs set in late June at around $1,250-52.
SILVER OUTPERFORMING GOLD IN AUGUST
Silver rose for a third successive session, bringing the gain for the week to more than 6 percent, putting it on course for its largest weekly gain since January. Spot silver was at $18.94 an ounce against $18.93.
Much of silver's recent rally is due to expanding investor interest, as registered by rising CME volumes and options-related buying - but there's also been a notable increase in ETF buying, said Edel Tully, UBS precious metals strategist, in a daily report.
We are positive towards silver this year, and see potential for it to gain as the 'poor man's gold', a cheap alternative to the primary safe-haven asset, she added.
The gold/silver ratio -- the number of ounces of silver needed to buy one ounce of gold -- fell to its lowest since the start of the month on Thursday. (Graphic: http://link.reuters.com/dyd57n)
The platinum group metals were also up on the day. Platinum was last at $1,530.50 an ounce, compared with $1,527 an ounce late in New York on Wednesday, while palladium was up almost 2 percent at $498 an ounce from $492.00.
(Additional reporting by Lewa Pardomuan in Singapore)