Gold was set for a third daily rise on Wednesday, recovering from an earlier dip, due to investor unease over the lack of a clear solution to the euro zone debt crisis.

The euro pared earlier losses made after a hotly anticipated summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel did not deliver the decisive solution to the euro zone debt crisis.

Evidence that growth in Germany -- the euro zone's largest economy and biggest creditor -- virtually stalled in the second quarter heightened the deep-rooted concern over the impact of the debt crisis to the region's economy.

Spot gold was up 0.1 percent on the day at $1,787.39 ounce by 1415 GMT, about 1 percent off last week's record $1,813.

The price earlier fell to a low of $1,780.75 before rising in line with more industrial commodities such as palladium and crude oil , while the dollar reversed course to fall against a basket of currencies.

"Volatility has come down quite significantly. It seems that markets have found a bottom, but I wouldn't say it's all over now, that the outlook is now bright and it seems everything is still on a very shaky footing," Commerzbank analyst Daniel Briesemann said of gold's safe-haven appeal.
This week, gold is set for a rise of 3.9 percent, which would mark its seventh consecutive weekly increase.

On a weekly basis, gold in Canadian dollars has performed the strongest , rising by more than 13 percent, followed by gold denominated in Swiss francs , which has risen 8.20 percent, as the Swiss currency has been shaken by the increasing efforts of the Swiss National Bank to tame its strength.

"When gold went to its highs, it wasn't just the euro zone crisis, it was also gloom and doom about the U.S. economy and some of that has lifted somewhat," said Mitsubishi analyst Matthew Turner.

"It's a currency story, in the sense that all currencies with the notable exception of the yen and the Swiss franc, are seen as weak, and the strength of those two is seen as being at the mercy of government policy.

"But it's not a currency story in the sense of day-to-day relative changes. Gold's move has been swamping that kind of currency move. They matter at the margin, but it's not the major driver at the moment."

EURO ZONE SLOWDOWN

Adding to investors' anxiety, the euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France.

"People are uncomfortable with what's happening in Europe and the United States," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
He added that strong investment demand had helped gold bar premiums in Hong Kong remain steady at 50 cents to $1 an ounce above spot prices, in line with reports from dealers in other parts of Asia on muted scrap selling and resilient investment interest despite high prices.

Investors' demand for gold in exchange-traded funds so far this month has been patchy. Much of the swell in the early part of the month has dwindled following hefty outflows late last week. So far this month, inflows into ETFs have reached a net 1.217 million ounces.

In July, when fear over a possible U.S. debt default and the deterioration in the fiscal positions of both Spain and Italy sparked fresh safe-haven demand for gold, inflows into global ETFs reached 2.95 million ounces, the biggest monthly inflow this year and the largest since May last year.

Billionaire investor John Paulson, whose flagship funds are down some 30 percent for the year to date, cut back on one of his biggest holdings but largely kept the other major holdings unchanged, according to data on Tuesday.

Silver rose by 1 percent on the day to $40.29 an ounce, while the more industrial platinum group metals also rose.

Platinum was up by more than 1.4 percent on the day at $1,839.49 an ounce, supported by inflows into ETFs and against a backdrop of threatened strikes in South Africa, the world's largest producer of the metal.

Talks are expected this week between a powerful union of mine workers and the world's top two platinum producers, Anglo Platinum and Impala Platinum to avoid a strike that could impact output.

Palladium was up by more than 3 percent at $777.19.