A gauge of expectations fell to its lowest level since 1980, even as the overall sentiment index inched up in early September.
Gold is on track to fall 3.5 percent this week, its biggest weekly decline since early May and its first two-week loss in over two months. It tumbled earlier this week as increasing efforts to contain the European debt crisis fuelled a hike in price volatility for bullion.
"Gold was driven by some short-covering ahead of the weekend, and I don't think the European crisis is going away any time soon, so that also provided an underpinning to prices," Bruce Dunn, vice president of trading at bullion dealer Auramet, said.
Spot gold was up 1 percent at $1,806.50 an ounce by 11:33 a.m. EDT (1533 GMT), after hitting $1,761.94, its lowest level since Aug. 26.
US gold futures for December delivery were up $26.50 at $1,807.90 an ounce.
Silver rose 1.3 percent to $40.34 an ounce.
Analysts said gold's initial decline was driven by the latest coordination by major central banks to ease liquidity constraints, raising hopes that policymakers would announce further action to help support the system.
A bearish double-top chart pattern in gold, formed after bullion recoiled from a record high of $1,920.30 set last week, accelerated technical selling, analysts said.
Most analysts said gold's long-term bull run remains intact, but some investors questioned the metal's ability to rise above $2,000 after its most volatile trade in two years, with bullion rising or falling more than 2 percent 12 times since August.
ASIAN PHYSICAL BUYING HELPS
Walter de Wet, analyst at Standard Bank, said that fairly decent physical buying out of Asia lifted gold from its early session lows.
"Over the past couple of weeks whenever gold falls below $1,800, we've seen good buying, especially in Shanghai," he said.
Traders say the premium for physical over spot in Shanghai was at about $14 compared with normal levels of about $2-$3.
The gold market awaits the Federal Reserve's policy meeting next week for a signal on future US monetary policy.
The Fed's quantitative easing program helped boost gold, which is up 40 percent since the start of the central bank's $600 billion bond-buying spree that ended in June.
Among platinum group metals, platinum hit $1,762.28 an ounce, its lowest since Aug. 11, as the crisis reinforced worries about the health of global economic growth and demand for auto-catalysts.
Platinum was up 0.5 percent at $1,790.24 an ounce, and palladium gained 0.4 percent at $723.47 an ounce.
Copyright Reuters, 2011