LONDON: Gold edged up to around $1,400 an ounce on Thursday, yet downside risk remained due to rebounding equities, while the dollar cut some of its earlier losses ahead of key US data.
The market is turning its attention to the release of US GDP data for the first quarter and weekly jobless claims at 1230 GMT, as they could give more cues on the Fed's future decisions.
Improved US data suggesting the Federal Reserve could decide to scale back the current monthly pace of $85 billion in asset purchases in the next few policy meetings may be a catalyst that could take bullion prices lower.
Gold rallied 1.3 percent to $1,410.51, its highest since May 22, in earlier trade as the dollar fell to a two-week low, mostly due to a stronger yen after Japanese equities took a tumble. It stood at $1,397.26 at 1206 GMT, up 0.4 percent.
US gold was up 0.5 percent to $1,398.10 an ounce. Traders said volumes could see wide swings due to the June-August contract roll over on Friday.
The dollar index fell 0.1 percent, while European stocks reversed Wednesday's losses as euro zone data showed confidence in the bloc's economy improved more than anticipated in May.
"The fall in equity markets in the past few days shows that there is perhaps some concern that these had moved up too quickly at a time when you also had everyone buying the dollar on expectations of US recovery," SP Angel analyst Carole Ferguson said.
"I think the reversal of that is what is obviously helping gold and prices could settle not far from here if the $1,400 level is sustained, which will depend on whether investors continue to buy into risk or not."
In bond markets, US 10-year Treasury yields retreated from 13-month highs reached earlier in the week.
As gold has no interest rate, a fall in returns from US bonds and other markets, at least for now, is seen as a positive sign.
"The bearish trend remains in place," ScotiaMocatta said in a note. "However, we are short-term neutral until this consolidation period is resolved ... the base of the consolidation is at the $1,339 low from May 20, resistance is at the top at $1,414, the high from May 22."
PHYSICAL DEMAND
For now, strong premiums for gold bars in Asia have indicated jewellers and retail investors are happy to buy bullion on dips. In Singapore, supply constraints have sent premiums to all time highs at $7 to spot London prices.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.9 tonnes to 1,013.15 tonnes on Wednesday, the first increase since May 9.
Silver was up 0.4 percent at $22.58 an ounce. Platinum firmed at $1,452 an ounce, up 0.1 percent and palladium gained 0.5 percent to $750.22 an ounce.
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