Gold ended higher for the first time in six days on Tuesday as stock markets beat a retreat after a series of record highs on Wall Street.
Prices for bullion and gold futures remained in positive territory even though new orders for U.S. factory goods rose for a third straight month in April, signaling manufacturing and economic strength, which should have been bullish for equities.
But it looked difficult for the precious metal to make solid gains, with uncertainties ahead of Thursday's European Central Bank policy meeting and caution after a huge decline in investor activity in U.S. gold futures.
"The market's trying hard to break out of its five-day loss. But it couldn't have picked a worse time, given the unknowns from the ECB and after the tremendous loss of open interest from the option expiration, roll-over and first notice day in gold futures," said George Gero, senior vice-president at RBC Wealth Management in New York.
U.S. gold futures for August delivery ended 50 cents higher at $1,244.50 an ounce.
Spot price of bullion was just a touch higher than Monday's close, rising 0.1 percent to $1,244 an ounce. It initially fell to a new four-month low of $1,240.61, threatening to extend the decline of the past five sessions, which marked longest losing streak in nearly seven months.
"The market is not finding any confidence at the moment, and you could even argue that now we have seen a couple of attempts to bounce but those have been very shallow, which leaves the risk that we could see further weakness in the market," Saxo Bank senior manager Ole Hansen said.
U.S. stocks edged lower, receding from record levels. Global equities also fell. The dollar index eased 0.2 percent, but remained near its highest since Feb. 13.
The ECB is expected to cut interest rates, as well as lower the rate banks are charged for depositing funds with the central bank to below zero, on Thursday.
Weak demand for physical gold in No. 1 market China, even after the end of Monday's Dragon Boat festival, added to uncertainty.
"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.
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