Gold rose almost one percent on Wednesday, as the dollar remained under pressure after mixed US data and political turmoil in Egypt and Portugal triggered safe haven buying. Volumes thinned as traders were reluctant to take big positions ahead of the US Independence Day holiday on Thursday and key US nonfarm jobs data on Friday.
Spot gold rose as much as 1.5 percent to a session high of $1,259.60 an ounce earlier and was at $1,252.91 an ounce at 2:55 pm EDT (1855 GMT), up 0.93 percent. US gold futures for August delivery settled up $8.5 at $1,251.9 an ounce. "Today's strength is more to do with the dollar and equities markets after bad euro zone data, mixed US numbers and renewed worries about Portugal and Greece," VTB Capital analyst Andrey Kryuchenkov said.
The shake up in the Portuguese government and nervousness over the state of Greece's next tranche of bail-out money returned attention to the European debt struggle and coupled with unrest in Egypt, triggered some safe-haven buying. Even so, gold was knocked off its intraday highs after data showed a pick up in the US and reinforced expectations the Federal Reserve will curb its stimulus program this year. The dollar fell off an earlier five-week peak.
The US private sector created more jobs than expected in June, while US initial weekly jobless claims fell for a second straight week. Other data was less upbeat. A report showed the US services sector in June grew at its slowest pace in more than three years. But analysts said Wednesday's employment data points to an upbeat jobs report on Friday from the Labour Department, which is expected to show the economy created 165,000 jobs last month.
"It would be very bad for gold if you get a non-farm payrolls number good enough for the Fed to taper but at the same time not strong enough to see any inflationary pressure coming through," BofA Merrill Lynch analyst Michael Widmer said. "The bounce will be viewed as just that until there is a key indicator that would change market perceptions of a need for financial protection," said Carlos Perez-Santalla, a broker at Marex Spectron.
Gold posted its biggest ever quarterly loss of almost 23 percent for the April-June period after Fed Chairman Ben Bernanke announced the US economy was recovering strongly enough for the bank to begin tapering its stimulus in the next few months. However, the exact timing of the Fed's move remains unclear.
Sentiment remained guarded however as outflows from exchange-traded funds (ETFs) continued and physical demand failed to pick up after prices plumbed a three-year low of $1,180.71 on Friday. Holdings of the world's largest gold-backed exchange-traded fund SPDR Gold Trust fell 0.37 percent to 964.69 tonnes on Tuesday, hitting fresh lows since February 2009. Silver tracked gold's gains, up 2 percent to $19.74 an ounce. Platinum fell 1.6 percent to $1,341.75 an ounce and palladium slipped 0.17 percent to $682.72 an ounce.