Gold rebounded back in Europe on Wednesday as the dollar skidded lower after US industrial production was lower than expected, adding to the view that US economic growth is slowing.
Spot gold rose to $630.90/631.70 an ounce by 1415 GMT, up from $623.60/624.40 in New York late on Tuesday, when prices slipped to a three-week low of $620.60.
The dollar fell after a tame reading of underlying US inflation reinforced a view that the Federal Reserve may not need to raise interest rates further to ward off pricing pressures.
The US Federal Reserve left rates on hold at 5.25 percent last week after bumping them up 17 straight times since June 2004, though it left the door open for more credit tightening if price pressures persist.
A rise in interest rates tends to help the dollar and generally is negative for gold.
Dealers kept an eye on the oil market and the situation in the Middle East.
Oil steadied near $73 a barrel on Wednesday ahead of US inventory data expected to show another drop in US crude and gasoline stocks.
Israel said on Wednesday it would stop withdrawing from south Lebanon unless Lebanese troops moved there within days, as diplomats worked on plans for a stronger UN force to bolster the truce with Hizbollah guerrillas.
Safe-haven gold is often seen as a hedge against inflation.
In industry news, the World Gold Council said the global uncertainty in the economic and geopolitical arenas should continue to foster strong investment in gold throughout 2006, but a more stable price scenario would be needed to turn falling demand for gold jewellery.
There was market talk that central banks might be selling gold, but no confirmation.
"We suspect that the impact of any recent central bank sales is being overestimated due to thin summer conditions and that the gold market may be unnecessarily worrying about small or even non-existent transactions," UBS Investment Bank said.
The European Central Bank said on Tuesday that Eurosystem central banks' gold reserves fell by 32 million euros ($41 million) last week while net foreign currency reserves had risen by 0.1 billion euros.
Precious metals consultancy firm Virtual Metals said the global gold market remained in deficit in the second quarter of 2006 because of continued dehedging and slower sales by central banks.
De-hedging added a net 159 tonnes to demand in the second quarter, higher than the previous quarter's 153 tonnes, while central bank sales were just a net 85 tonnes, down sharply from 107 tonnes in the first quarter of 2006, it said.
In other precious metals, silver rose to $12.32/12.42 an ounce, from $12.01/12.11 in New York, while platinum rose to $1,233/1,238 an ounce from $1,226/1,231. Palladium was up at $333/338, versus $318/322.