NEW YORK (Reuters) - Gold edged higher in choppy trade on Thursday but was set for its biggest monthly loss since December, dragged lower along with riskier assets which were sold off amid a deepening euro zone debt crisis and signs of stalled economic growth.
Despite the previous session's dramatic turnaround in a technical rally, gold is on track for a 6-percent drop and its longest monthly losing streak in 12 years, as anxious investors are not yet convinced gold's ability to protect their portfolios against economic uncertainty.
"It seems like investors are increasingly using gold as a short-term allocation shift for safety when things are really falling apart," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien.
Gold ground higher in midsession, for a second day breaking its trend of moving in sync with equities and commodities, after private payroll growth data and jobless claims on Thursday suggested the jobs recovery was stalling. The disappointing data came ahead of Friday's all-important nonfarm payrolls report.
Spot gold was up 0.3 percent at $1,567.01 an ounce by 12:55 p.m. EDT (1655 GMT). Bullion's 6 percent drop for the month marked its biggest decline since a late December sell-off last year which sent bullion teetering on the brink of a bear market.
For May, bullion is still on track to outperform losses in crude oil of about 15 percent and the S&P 500 index's .SPX 7-percent decline. The precious metal is about even since the start of the year.
Gold gained 15 percent earlier this year after the Federal Reserve said it would keep interest rates near zero until at least late 2014 and could introduce a fresh round of economic stimulus or an asset-purchase program known as quantitative easing (QE).
Since then, however, investors have shunned gold due to mounting uncertainty over Europe's crisis and a lack of economic stimulus from central banks.
Gold's gains were checked on Thursday as equities and crude oil sold off for a second day after the European Central Bank stepped up pressure for a joint guarantee for bank deposits across the euro zone, saying Europe needed new tools to fight bank runs.
COMEX gold futures for August delivery was up 3.30 at $1,569.00 with trading volume at a normal pace after stronger-than-norm turnover in the previous two sessions.
Additional reporting by Jan Harvey in London; Editing by Alden Bentley