Gold prices steadied above $1,600 an ounce on Thursday, taking a breather after posting their biggest one-day rise since late June the previous day, as a dip in the euro versus the dollar and a weaker tone to stocks took the heat out of its rally.
The metal benefited on Wednesday from gains in the euro on speculation the euro zone's bailout fund could be given access to central bank money, and as weak U.S. data prompted fresh talk that more monetary easing could emerge later this year.
It rallied 1.5 percent, its strongest one-day performance in nearly four weeks, but failed to maintain those gains on Thursday as downbeat corporate earnings weighed on European shares, and the euro eased on persistent worries about the possibility of Spain applying for a full bailout. .EU
"Yesterday's move above $1,600 an ounce was driven by more positive sentiment towards gold on the back of growing anticipation for QE," BNP Paribas analyst Anne-Laure Tremblay said.
"Short term, the gold price remains however vulnerable to a retracement, particularly in a context of high uncertainty in the euro zone."
Spot gold was at $1,603.34 an ounce at 0946 GMT against $1,603.88 late on Wednesday, while U.S. gold futures for August delivery were down $5.80 an ounce at $1,602.30.
Gold priced in euros outperformed, rising 0.2 percent to 1,321.74 euros an ounce, close to a five-month high.
Gold options expiry takes place on Comex later in the day, with the bulk of call options -- which give the holder the right, but not the obligation, to buy -- at $1,600.
Speculation the Federal Reserve will unleash another round of monetary easing this year has been the chief support to gold prices in recent months, after a spate of lackluster U.S. data.
Such a move would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, and would likely weigh on the dollar, stoking demand for the metal as an alternative store of value.
HSBC analyst Jim Steel said that gold may take its next cue from second-quarter U.S. GDP data on Friday, with the bank flagging up expectations for a growth rate of 1.1 percent.
"If the growth rate... is nearer to 1.0 percent... the FOMC may move closer to a decision to provide even more monetary stimulus in the weeks and months ahead," he said in a note.
"Gold has shown itself sensitive to monetary policy announcements this year and any indication of further easing would buoy gold prices."
SELLING IN ASIA
A rally in gold prices prompted some selling in Asia's physical gold market, but market participants feared the price rise would lose momentum as policy uncertainty keeps sentiment brittle.
The world's largest gold-backed exchange-traded fund, which issues securities backed by physical precious metal, reported a 2.1 metric ton outflow on Wednesday. The fund saw its biggest weekly outflow of physical metal this year last week.
Among other precious metals, silver was down 0.1 percent at $27.30 an ounce, while spot platinum was up 0.4 percent at $1,396.99 an ounce and spot palladium was up 0.1 percent at $562.49 an ounce.
Platinum miner Lonmin (LMI.L) said on Thursday it had slashed spending plans up to 2014 in order to preserve cash, as it warned poor demand and weak prices battering the sector could persist for longer than expected.
South African platinum miners have been hit this year by a combination of rising costs, labor unrest and weak metals prices. However, analysts say it will be tough for them to cut production in a country where unemployment is rife and mining unions hold great sway.