Financial markets are keenly awaiting key speeches on the US economy from President Barack Obama and Federal Reserve chairman Ben Bernanke later, and the outcome of the latest policy meeting of the European Central Bank (ECB).
Gold has had a choppy week, hitting a record high above US$1,920 on Tuesday before correcting more than US$120 an ounce to the week's lows in the next session.
Physical gold purchases rose after prices eased below US$1,800 on Wednesday, dealers said. Physical demand is expected to rise ahead of India's wedding season and as concern over the economic outlook brightens gold's appeal as a haven.
"In the medium term to long term, it's pretty clear that the bullish trend hasn't been tarnished a bit," said Pradeep Unni, senior analyst at Richcomm Global Services. "We take yesterday's slide as correction which is good for the overall bullish market."
Spot gold was up 1.1% at US$1,835.30 an ounce at 1103 GMT.
Prices have been volatile in recent weeks. The markets are weighing up the prospect of further quantitative easing – or money printing – in the United States. A raft of soft US data has led to speculation the US authorities may feel the need to stimulate sluggish growth.
Obama's speech to lay out a US$300 billion jobs package later and a presentation by Bernanke at 1730 GMT will be closely watched for any signs on the outlook for the US economy and Fed policy.
Expectations for more quantitative easing were a key factor sending gold prices higher last month. If those weaken, gold could correct.
"As much as market participants are starting to price in the possibility of QE3 materialising after all, there is still no guarantee that this is the route the Fed will take when the FOMC meets for two days on 20-21 September," said VTB Capital in a note.
US gold futures for August delivery were up US$20.80 an ounce at US$1,838.40.
Euro zone debt crisis eyed
European stocks rose on Thursday, extending the previous session's rebound as investors bet on a more dovish tone from the ECB at its press conference this afternoon.
On the foreign exchange markets, the euro wilted as investors worried that Europe's efforts to fix the debt crisis were not working fast enough.
Swiss bank UBS said it sees the euro zone debt crisis as a key factor driving prices higher, as it raised its 2012 gold price forecast to US$2,075 an ounce from US$1,380 and its 2011 price view to US$1,665 an ounce from US$1,500.
"Our core view is that ongoing global macroeconomic disappointments, the inevitability of further negative turns in the European sovereign debt crisis, with low business, consumer and investor confidence will lead to gold being increasingly used as the line of defence against additional negative market outcomes," the bank said in a report.
"With the pool of competing asset alternatives sparse, 'new' money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications."
"Much rests on policymakers' actions, in particular whether they will act proactively and whether such action will in fact have a positive impact on growth," it said.
On the supply side of the market, Libya's central bank, now under the control of the country's new leaders, said on Thursday it had sold 29 tonnes of gold in April or May to merchants within the country.
Among other precious metals, silver was up 1.3% at US$42.04 an ounce. Holdings of the world's biggest silver-backed exchange-traded fund, the iShares Silver Trust, rose by 72.7 tonnes on Wednesday, its biggest one-day increase since Aug 23.
Spot platinum was up 1.1% at US$1,835.74 an ounce, while spot palladium was up 1.5% at US$758 an ounce. – Reuters
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