Global equities rose to their highest in seven trading sessions, boosted by gains in Asia and the United States as investors felt more confident about the upcoming earnings season, while the euro hit two-month highs against the dollar.
Spot gold touched $1,203.65 an ounce by 0922 GMT (5:22 a.m. EDT), compared with $1,201.85 late in New York on Wednesday, when it hit a low of $1,185.05, its lowest since May 25 and around 6 percent below late June's record high.
U.S. gold futures for August delivery rose $4.7 an ounce to $1,203.60 an ounce.
I'm still friendly toward gold. We haven't sorted out any of the problems adherent in the economy in terms of sovereign debt, liquidity issues and so on. There will be more of that when the stress tests get underway, said Credit Agricole analyst Robin Bhar.
I just feel that we could be near the top of the range for gold. Maybe there are factors that will help support it, but I don't think you've got the fear factor any more, the end of the world, Armaggedon to really drive gold significantly higher.
Gold prices have hit lifetime highs on worries the European debt crisis would spread and the U.S. economy was slowing.
The International Monetary Fund's chief economist Olivier Blanchard said on Thursday the global economy is unlikely to slip back into recession over the next few years, although such a scenario is not impossible.
A lot of nervousness in the market had also stemmed from concern that debt-laden nations such as Portugal, Spain or Greece would be unable to access funding.
But a series of solid government bond auctions from both peripheral and core euro zone states, along with the smooth repayment of nearly half a trillion euros' worth of emergency one-year loans by the banks to the European Central Bank last week have gone a long way toward soothing that concern.
The ECB will hold a news conference later in the day after its monthly meeting, and will face pressure to say whether Europe-wide stress tests on banks will be tough enough to convince markets of their worth.
Helping to keep gold relatively steady was a pick-up in consumer activity in key buying regions in line with the pullback in the price.
The physical sector saw buying interest from Indonesia and Thailand, but consumers were not too aggressive after prices crossed $1,200 level again.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings were unchanged at 1,316.481. Holdings hit a record at 1,320.436 tonnes on June 29.
There's still some buying but I guess most people are now waiting for delivery. Physical buying is still there and my premiums have gone up to 80 cents, said a physical dealer in Singapore.
Jewelers in India have been stocking up ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell.
India, which accounts for more than 20 percent of global demand, will celebrate the Hindu festival of Raksha Bandhan on Aug 24, Janmasthami and Ganesh Chaturthi in September.
A firmer euro also supported gold. The single currency rose to a two-month high against the dollar on Thursday, with an upbeat day on Wall Street underpinning improved tolerance for risk.
Across the rest of the precious metals complex, prices were largely steady. Silver was bid at $17.99 an ounce, compared with $18.00 on Wednesday, while platinum was at $1,524 an ounce, versus $1,523.50 and palladium was at $446.05, compared with $446.00.
(Editing by Alison Birrane)