Gold turned lower Monday despite broad metals and commodity gains amid economic optimism, as technical selling put a damper on bullion's initial rise.
Silver and platinum group metals, however, climbed on positive economic sentiment amid sharp industrial metal gains, while crude oil jumped nearly $3 to above $81 (U.S.) per barrel and as the euro hit its highest level since early May.
In early sessions, gold rose toward $1,200 an ounce, as rallies in other markets stirred fund buying. Wall Street rallied more than 2 per cent on strong corporate earnings.
George Nickas, commodities broker at FC Stone, said gold rose in early sessions on hopes of economic recovery, but technical selling were still pressuring prices.
"The gold market is undecided whether it wants to follow the strength in the industrial metals. If you look only at the gold chart, this is a rally in a down-trending market, so it attracted profit taking," Mr. Nickas said.
"Last week, the August contract going into first-notice day was extremely weak, and gold traders haven't shrugged that off yet," he said.
Gold lost about 5 per cent in July and was among the top percentage losers in the commodities complex.
Analysts said the metal is at risk of falling sharply after breaking below a two-year bullish support channel.
Spot gold rose as high as $1,190.40 an ounce and was last at $1,179.95 an ounce at 12:28 p.m. EDT (1628 GMT), against $1,181.50 late in New York on Friday. U.S. gold futures for December delivery slipped $2.10 to $1,181.80.
Simon Weeks, head of precious metals at the Bank of Nova Scotia, said gold in early sessions had risen above the 100-day moving average at $1,183 an ounce on the back of currency moves and rising oil prices.
However, he added gold remained vulnerable to losses, especially if equity markets continued to climb. "People will liquidate safe havens and put risk on," he said.
Gold managed to arrest a slide that last week took it to a three-month low of $1,156.90 an ounce and then turn higher in its best run since late May.
Investment in gold has ebbed recently, however, as assets seen as higher risk such as stocks have firmed.
The world's largest bullion exchange-traded fund, the SPDR Gold Trust , reported its biggest outflow in a year last month, with holdings down more than 38 tonnes in July to 1,282.3 tonnes.
Other assets seen as higher risk also rose, with oil prices climbing nearly 3 per cent above $80 on Monday as macroeconomic indicators in top energy consumers the United States and China showed slower but sustained growth.
DOLLAR WEAK, EURO NEARS $1.32
Despite the Wall Street rally, fears the U.S. recovery is faltering drove the dollar to a three-month low against a basket of currencies, while the euro neared $1.32 for the first time since early May.
Lower prices, meanwhile, encouraged higher gold demand from key bullion-consuming centers China, India and the Middle East.
The World Gold Council said the International Monetary Fund sold 17.4 tonnes of gold in June as part of a planned program of bullion sales. That leaves 120.2 tonnes of gold still to be sold under the program.
Silver was up by over 2 per cent at $18.34 an ounce versus $17.96, making this its strongest one-day performance since early June, while its ratio to gold - or how many ounces of silver are needed to buy an ounce of gold - hit its lowest since mid-May at 65.0.
Platinum was at $1,592 an ounce against $1,566.55, while palladium was at $510 against $491, having hit its highest since mid-May earlier in the day.