On Wednesday gold edged up as the dollar took a breather after recent gains and as financial markets were jittery regarding Greece's future in the euro zone.
The uncertainty over
Greece debt crisis has provided aid to gold in recent days, though it is
still down nearly 4 percent so far this month as a strong dollar and
expectations of an interest rate hike in the United States have undermined demand for the metal.
Spot gold XAU/USD rose 0.3 percent to $1,237.70 an ounce by 0745 GMT, following a 0.4 percent drop on Tuesday that sent it closer to a three-week low of $1,228.25 reached last week.
The dollar was steady on Wednesday against a basket of major currencies but it wasn't too far from a 11-year peak hit late last month. A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.
Economic and financial uncertainties tend to boost demand for gold, as the yellow metal is seen as a safe-haven investment.
"Without risk-related buying, gold may face further pressure in the near-term," said HSBC analyst James Steel. "Gold may also be weighed down by Fed policy, especially if the market comes to believe that a rate hike is likely in June."
"Gold may have to trade closer to $1,200 before emerging market demand is stimulated sufficiently to halt the price slide," he said.
Market players are now watching Europe, where the probability of Greece's exit from the euro zone has risen in recent days as Prime Minister Alexis Tsipras has taken an increasingly tough course regarding government debt.
The looming euro zone meetings of finance ministers on Wednesday and EU leaders on Thursday overshadowed a firmer finish on Wall Street, pressuring Asian stock markets.
Investors were also watching comments from Federal Reserve officials on the timing of any rate increase.
According to a top Fed official, the Fed should raise interest rates in June, as the U.S. economy is strengthening and that inflation will move back to the central bank's target.
Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. economy, could further strengthen the dollar and possibly hurt demand for bullion, a non-interest-bearing asset.
