Gold prices steadied near two-week highs on Wednesday after rallying on a rise in the euro the day before, with investors continuing to take their cue from the single currency for direction.
In the near-term, if investors keep cutting short positions on the view they had sold the single currency too much on worries about Greece, there is scope for bullion to test its upside, traders said.
Spot gold rallied to two-week highs on Tuesday as the euro recovered from recent hefty losses against the dollar and as investors snapped up gold to hedge against debt default risks in Europe.
"As is the case a day after a strong rally, gold has steadied as investors take a break from buying, but gold is likely to extend gains as sentiment for the euro is improving," said Astmax Co GM Tetsu Emori.
The euro's recovery sparked buying in oil and other commodities as a weaker dollar makes dollar-denominated commodities cheaper for holders of non-dollar currencies.
Rallying commodities and gains for equities markets also boosted sentiment, reflecting the return of risk appetite among investors, traders said.
Spot gold eased 0,3% to $1 115,90/oz as of 02:47 GMT, compared with New York's notional close of $1 118,95. Spot gold rose as high as $1 120,80 on Tuesday, its highest since February 3.
US gold futures for April delivery also inched down 0,3% to $1 116,60/oz, compared with $1 119,80/oz on the COMEX division of the New York Mercantile Exchange. Futures ended up $29,80, or 2,73%, on Tuesday at their highest settlement level since January 19.
Euro-priced gold was at 810,50 euros an ounce on Wednesday, slipping from a record high 819,07 euros an ounce hit the day before. Gold priced in sterling and South African rand also rose to one-month highs on Tuesday.
European finance ministers said on Tuesday that Greece should present a report by March 16 setting out a timetable for the implementation of budget target measures for 2010, and another by May 15 setting out policy measures needed to comply with the finance ministers' decision. Quarterly reports will be required from then on.
"The problems weighing on the euro are not resolved, but it's also hard to see the euro plunge below recent lows on the Greece issue alone as the problem has been addressed and steps are being discussed," Emori said.
The euro held steady on Wednesday after rebounding against the dollar to post its biggest one-day gain since July the day before, as traders bet the single currency had slipped too far in recent weeks over worries about Greece's public finances.
The Nikkei stock average rose 2,1%, following gains in US stocks, which posted their biggest daily percentage gain in three months on Tuesday.
The rise in gold market spurred investment demand, with holdings at the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rising 0,3% or 3,046 t from the previous business day to 1 109,424 t as of February 16. It was the first increase in holdings since February 5.
Billionaire investor George Soros' hedge fund owned 6.2 million shares of SPDR Gold Trust at the end of the year worth $663 million, up from 2.5 million shares at the end of the third quarter.
