Spot gold turns positive amid sharp market selloff

Source: World Gold Council

Spot gold crawled higher on Tuesday, paring post-ISM losses, as energy shares dragged benchmark U.S. indexes to session lows.

Spot gold was 0.3 percent higher at $1,292 an ounce after slipping as much as 0.4 percent earlier in the session. U.S. gold futures for December delivery settled $3.60 lower at $1,285.30 an ounce moments before stocks accelerated earlier losses.

Gold tread negative territory for most of the day as the dollar rallied after a report showed growth in the U.S. services sector hit a 8-1/2-year high in July, helped by increased business activity.

The Institute for Supply Management said its services index rose to 58.7 last month, the highest since December 2005, from 56.0 in June. The reading blew past economists' forecasts for 56.3, according to a Reuters survey.

The dollar came under some pressure on Tuesday from a fall in U.S. bond yields but it rose 0.3 percent, near a 10-1/2-month peak, after the service sector data.

Earlier, a separate report showed growth in China's service sector slowed sharply in July to its lowest level in nearly nine years, a private sector survey showed, hurting Asian stocks and boosting gold, which is seen as an alternative to riskier assets such as equities.

Read MoreGold miners insist they are not in 'dire straits'

"While many geopolitical hotspots are on the boil, none have managed to keep any sort of bid underneath gold for long," INTL FCStone analyst Edward Meir said.

Chart: Precious Metals

"We suspect that while political outbreaks provide the occasional jolt, it is the economic crises that seem to have more long-lasting impact. Over the course of August, we see prices trading between $1,260 and $1,320."

Gold has recently been hurt by U.S. economic data as a strong recovery could prompt the Federal Reserve to raise interest rates, diminishing the appeal of non-interest-bearing assets such as bullion.

Markets were waiting for data on factory orders and the ISM non-manufacturing PMI on Tuesday for further clues about the U.S. economy. Data last week was mixed, with second-quarter gross domestic product rebounding sharply but jobs growth in July slowing down.

In a measure of investor sentiment, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 1.79 tonnes to 800.05 tonnes on Monday, the first drop since July 24.

--By Reuters. For more information on precious metals, please click here.