LONDON: Gold edged higher on Wednesday as European stocks fell, but gains were kept in check by a steadier dollar and as investors awaited further indications of an end to US monetary easing.
Market sentiment remained guarded 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.
"Prices are treading water at the moment and a firmer dollar is capping further increases," Commerzbank analyst Daniel Briesemann said.
"Debt crisis in Greece and Portugal, which seem to be back in focus, is weighing on equities and possibly leading to some higher demand for gold, but on the other end we are still seeing outflows from ETFs and that's negative," he added.
Nervousness over the state of Greece's next tranche of bail-out money and Portugal's political deadlock dragged European shares lower.
Gold posted its biggest ever quarterly loss of almost 23 percent for the April-June period on concerns the US Federal Reserve would end its $85 billion monthly bond purchases.
Yet prices rebounded above $1,200 an ounce by traders covering short positions this week.
Spot gold rose 0.4 percent to $1,245.58 an ounce by 1008 GMT. US gold futures for August delivery were up 0.1 percent at $1,244.60 an ounce.
The dollar held firm against its major counterparts, as investors positioned ahead of a US Independence Day holiday on Thursday and US nonfarm jobs data on Friday that could give clearer clues of the Fed's monetary easing strategy.
"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. Gold is usually seen as a hedge against inflationary pressures.
Fed Chairman Ben Bernanke said last month the US economy was recovering strongly enough for the bank to begin tapering its stimulus in the next few months, and possibly end the programme in mid-2014. This would support a rise in interest rates, making gold less attractive.
However, the exact timing of the Fed's move remains unclear.
Two senior Fed official said on Tuesday that the bank's monetary policy to support the economy will likely be warranted for some time to come.
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.
Physical demand for gold has emerged as it did in April, when prices fell the most in 30 years, and premiums remained steady in main Asian markets as refineries prepare to shut for house-keeping during the summer period, traders said.
Silver rose 0.8 percent to $19.51 an ounce. Platinum fell 0.5 percent to $1,.357 an ounce and palladium dropped 0.6 percent to $679.50 an ounce.
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