Gold rose half a percent on Thursday as bargain hunters resurfaced after prices tumbled to another 4-1/2 month low in the previous session and the euro rebounded, but gains could be limited by fears of a deepening debt crisis in Greece.
Investors have unwound their bullish bets in gold, cashing in the metal to cover for losses in other markets, after the turmoil in Europe raised the spectre of a recession that threatens to hurt the global economy.
Gold added US$8.29 an ounce to US$1,546.59 by 0250 GMT as the euro regained strength after falling to a four-month low on Wednesday, when bullion plunged to US$1,527 - its weakest since December 29.
"For now, we could see some buying on dips below $1,550. The situation in Greece seems uncertain and the outcome could turn the markets either way," said Lynette Tan, an analyst with Phillip Futures in Singapore.
"Investors are currently trading cautiously and we expect gold to be range trading. For now, it's probably between US$1,500 and US$1,550."
Gold, traditionally a safe-haven asset, has been moving in tandem with riskier assets such as equities, industrial metals and oil this year, as investors turn to the safety of the dollar.
US gold futures for June delivery rose US$10.20 an ounce to US$1,546.80.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent on Thursday, after sliding more than 3 percent for its biggest one-day drop in six months in the previous session.
But fears of contagion spreading to other stressed euro zone economies lingered after the European Central Bank said it has stopped providing liquidity to some Greek banks as they have not been successfully recapitalised.
IMF chief Christine Lagarde warned of "extremely expensive" consequences if Greece were to leave the euro zone, a once taboo possibility that European leaders have begun to discuss openly given the nation's political chaos.
"Austerity is imposing intolerable unemployment and political chaos in Greece, and won't permit it to repay its debts. Athens must abandon the euro and reintroduce the drachma," said Peter Morici, an economist at the University of Maryland.
"For austerity and debt restructuring to work, Greece must generate new exports and curb imports to accomplish trade surpluses and earn euro to begin paying off its remaining debt."