LONDON: Gold firmed on Tuesday, snapping a five-day losing streak as European shares dipped, but was still trading near its lowest level in four months after upbeat U.S. data kept the dollar close to a multi-month high versus a basket of currencies.
Spot gold edged up 0.1 percent to $1,245.40 an ounce by 1016 GMT. The slight rise on Tuesday followed a five-day decline that was the metal's longest losing streak in nearly seven months.
U.S. gold futures for June delivery were up $1.90 an ounce at $1,245.90 an ounce.
European shares fell and the dollar index hovered near its highest since Feb. 13, as investors digested data showing that euro zone price inflation unexpectedly dropped in May, increasing the risks of deflation in the currency area and sealing the case for the European Central Bank to act this week.
The ECB meets on Thursday and is widely expected to cut interest rates, including lowering the rate banks are charged for depositing funds with the central bank to below zero.
"There is a fear in the gold market that as various positive macro events come together they can give gold a severe blow and this time around the Chinese demand is not going to be there," Macquarie analyst Matthew Turner said.
"This seems to me too pessimistic, both because the macro data is not uniformly positive - indeed in Europe the central bank is still in easing mode - and while Chinese gold imports are falling Indian imports are rising," he added. "Nevertheless, the easiest route for gold seems to be down."
In other markets, U.S. 10-year Treasury yields rose to around 2.53 percent, boosted by positive U.S. economic numbers on Monday. Returns on U.S. bonds are closely watched by the gold market, given that the metal pays no interest.
U.S. and Chinese data on Monday showed that manufacturing activity expanded in May, putting the world's two largest economies on a seemingly firmer path to recovery.
CHINESE DEMAND
Weak demand in top consumer China contributed to keep prices near their lows, with buying interest failing to come back strongly after the Dragon Boat festival on Monday.
Prices for 99.99 percent purity gold on the Shanghai Gold Exchange eased on Tuesday. Premiums to the global benchmark failed to budge on Tuesday, remaining at about $3 an ounce - the same level as Friday's.
"There is no special interest from Shanghai today, in fact we see some small liquidation," said a trader in Hong Kong. "This indicates that consumer demand over the long weekend was not good."
Among other precious metals, platinum was unchanged at $1,424.30 an and palladium edged up 0.3 percent to $829.55 an ounce as wage strikes in major producer South Africa dragged on for a fifth month.
A South African labour court threw out an urgent application on Monday by the AMCU union to stop platinum firms communicating directly with miners, as both sides deliberated over government proposals to end the strike.
Silver gained 0.5 percent to $18.81 an ounce.
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