London gold fixed at $258.60 a troy ounce in the morning versus Wednesday afternoon's $261.30.

``It's a bit disappointing. I suspect a lot of people were a bit more positive after the World Gold Council demand figures, which I think were good,'' said one London dealer.

``I was looking for some stops around $263.00 which we were unable to achieve,'' he added.

Data released on Wednesday by World Gold Council (WGC), a gold mining industry group, showed second quarter demand up 16 per cent year-on-year to a quarterly record high of 810 tonnes.

The rise resulted from a 13 per cent gain in jewellery demand and 32 per cent rise in gold investment, the WGC said in a survey of 27 countries accounting for 80 per cent of world gold demand.

One dealer made the point that if there was record demand there must also berecord supply given the paltry rise in price.

``The recent bad performance of gold may have left a bad taste for many bulls,'' said head of strategy at Geneva-based metals refiner and trader MKS Finance, Frederic Panizzutti

``It is our belief that we may see lower levels now and (the) $255.00 support zone may soon be on the cards,'' he added.

One source of supply has been mine hedge sales, evidenced in second quarter reports by gold miners, a factor which remained in play on Thursday amid easier lease rates and the battering meted out to the Australian dollar.

Australia gold was last at A$404.93/A$406.35, its highest since early June despite the fall in US dollar prices.

A one-cent fall in the Australian dollar versus its US counterpart came after hectic selling on the New Zealand dollar and Japanese yen crosses and talk of Japanese life insurers dumping overseas assets.

Gold miners in Australia, the world's third largest producer, are amongst the most enthusiastic hedgers.

Easier gold leaserates also made forward sales more attractive by increasing the premium available over spot prices.

Spot gold was last at $258.10/258.50 compared with Wednesday's New York close at $259.40/$259.90 while silver was a cent lower at $5.19/$5.22.

Platinum rose 80 cents to $352.00/$354.00 while palladium was unchanged at $339.00/$344.00.