Gold rose back above USD 1,500 an ounce in Europe on Tuesday, recovering in line with oil prices as expectations that Greece's debt crisis may be contained tempered risk aversion, and as the euro regained some ground.
Prices remain range bound, however, as traders sought clarity on the euro zone debt crisis and the subsequent direction of the euro currency. Gold is closely linked to foreign exchange moves, as it is often traded as a currency.
Spot gold was bid at USD 1,502.55 an ounce at 0940 GMT, against USD 1,496.20 late in New York on Monday. US gold futures for August delivery rose $7.20 an ounce to $1,503.60.
The euro has suffered in recent weeks from worries Greece's debt crisis could destabilise the euro zone. If these concerns are allayed the euro could recover, benefiting gold despite the fact that it would lose some of its safe-haven bid.
"Even with the events going on in Europe, the euro-dollar has still been at USD 1.40-1.42 -- still quite an undervalued level for the dollar, despite what is going on in Europe," said Michael Lewis, head of commodities research at Deutsche Bank.
"If there is any slight marginal improvement in Europe, and if the European Central Bank is going to be starting to raise rates in September and December, you might have a currency story that could be quite positive for gold."
Greece's parliament is set to vote on Wednesday and Thursday on a new austerity programme required for Athens to receive more aid from the European Union and International Monetary Fund.
An agreement by heavily-exposed French banks to roll over Greek debt and talk that European Union officials are working on a contingency plan if Greece's parliament rejects an austerity package lifted hopes its debt crisis may be contained.
Oil recovers
Oil prices, which had been soft overnight, rebounded as European trade got under way, with rising equities pointing to sharper appetite for assets seen as higher risk.
Gold's correlation with oil has been patchy in recent years, turning negative in early 2009 as the credit crunch hit economic growth while lifting risk aversion, and in early 2010 when the euro zone debt crisis fuelled interest in gold as a haven.
Gold prices could see further short-term weakness, as physical buying remains soft during the seasonally weak summer months and as the US Federal Reserve's USD 600 billion bond-buying programme comes to an end on June 30.
But in the longer term low interest rates, prospects for dollar weakness and better consumer appetite for gold at lower prices are likely to support the precious metal.
"This is typically a quiet time of year for physical buyers, and the buying we've seen on this dip have not so far been of the magnitude that would be required for a proper bounce," said UBS in a note. "Should prices fall far enough, however, the physical market will react, summer notwithstanding."
"Indian buying has picked up since late on Friday, but a move down to USD 1,485, where many orders are sitting, is likely required to bring this market out in force. Chinese physical interest has also been tweaked by recent price action."
Among other precious metals, silver was at USD 34.06 an ounce versus USD 33.54, platinum at USD 1,687.24 against USD 1,671.55, and palladium at USD 732.97 against USD 724.98.
The white metals have come under significant pressure from recent falls in industrial commodity, with platinum touching 3-1/2 month lows and palladium near 6-week lows on Monday.
