Gold prices were steady on Thursday, supported by renewed worries about a global economic slowdown, but bullion's failure to rally at a time of extreme volatility in equity and energy markets suggested the metal could pull back in the near term.
Economic growth fears hit demand expectations for industrial metals and palladium, which is used mostly by the automobile industry as a catalytic converter. Palladium dropped 5 percent briefly before paring losses.
Gold was underpinned after James Bullard, president of the St. Louis Fed and a top U.S. central banker, said the Fed should keep buying bonds for longer than planned in the face of volatile markets and falling inflation expectations, even as another Fed policymaker warned against over-reaction.
U.S. stocks edged higher in afternoon trading on Thursday, rebounding from earlier declines, as a flurry of economic reports eased fears about the potential impact of a weakening global economy on the United States.
"Despite the share prices weakness and the concerns about growth that spread in the financial markets, people do not seem to be returning to the gold market en masse," said Julius Baer analyst Carsten Menke.
Spot gold flat at $1,240 an ounce. The metal rose to its highest since Sept. 11 at $1,249.30 in the previous session.
U.S. gold futures settled down $3.60 an ounce at $1,241.20 in heavy turnover.
The dollar was down 0.2 percent against a basket of main currencies, while major U.S. and European stock indexes were mostly lower.
Flight from risk resulted in a massive rally in U.S. Treasury bonds, pushing the yield of the benchmark 10-year bond as low as 1.865 percent on Wednesday, its lowest since May 2013.
Returns from U.S. bonds are closely watched by the gold market, given that the metal pays no interest.
Data on Thursday showed the number of Americans filing new claims for jobless benefits fell to a 14-year low last week and that industrial output rose sharply in September.
But U.S. data has been patchy, with Wednesday's figures for September showing that producer prices dropped for the first time in more than a year and retail sales also fell.
The uneven nature of the numbers this week added to concerns voiced by some Federal Reserve policymakers about the broader economic outlook, which could delay a hike in interest rates.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a proxy for investor sentiment, fell 0.27 percent to 759.14 tons on Wednesday.