Gold prices were on course for their biggest monthly rise since August on Tuesday, supported by a weaker dollar and raising the possibility of a climb toward last year's record high of just over $1,900 per ounce.
Sentiment for gold at the end of January compares starkly with late December, when prices dropped by more than 10 percent in their biggest monthly fall since the collapse of Lehman Brothers in an investor dash for cash.
A $400 price drop from last September's record $1,920.30 had left investors questioning whether gold had ended an 11-year rally.
Gold was up 0.8 percent at $1,743.40 an ounce by 1326 GMT, having earlier touched $1,744.80 - its highest since mid-December and up some 11.2 percent on the month to date.
The euro rose against the dollar on hopes for a Greek debt restructuring deal that would help the country avoid a disorderly default, possibly setting itself up for a test of a key chart level. A weaker dollar makes gold cheaper for holders of other currencies.
While recovering global share prices and hopes of a deal for Greece tempered gold's safe-haven gloss on Tuesday, concerns that Portugal could follow a similar path to Greece and data pointing to a poor first quarter in the euro zone was supportive.
More broadly, bullion was benefitting from a favorable monetary policy backdrop, with a jump of almost 5 percent last week after the U.S. Federal Reserve pledged to keep interest rates near zero until at least late 2014.
There's been a lot of money put to work here during January. Gold was at the beginning of the year one of the few commodities that everyone felt would be a good performer and people have been investing accordingly, said Ole Hansen, senior manager at Saxo bank.
After the big sell-off we had, there was a lot of nervousness heading into the last quarter. But the decisive move we've had, especially over the last week or so, has removed some of that worry, Hansen said, adding that any correction would be met by buyers.
A top U.S. Federal Reserve official said on Monday he would have preferred a more optimistic statement on the U.S. economy, after the central bank painted a grim picture of the recovery last week and forecast ultra-low interest rates.
With gold starting 2012 at a cracking pace ... gold may be poised to set fresh highs this year but much earlier than many - ourselves included - would have expected. Ross Norman, chief executive of Sharps Pixley, said in a note.
PORTUGAL YIELDS BREACH 17 PERCENT
Portugal's 10-year government bond yields fell sharply on the day but remained in sight of 17.0 percent, close to euro-era highs of around 17.4 percent, stoking the fears that Lisbon may become the next Athens.
Sentiment seems to have improved quite tremendously, I would say. We are now into more bullish territory, more than ever, with the Fed providing enough fundamental support, said Dominic Schnider, head of commodity research at UBS Wealth Management.
I think we have good reasons to believe we are going to test $1,805. The Fed was clearly the most important event, he added.
Gold has gained for the last four weeks, with a spike in prices before the Lunar New Year holidays being driven partly by Chinese buying.
Before the Chinese New Year really started, we've seen quite strong gold exports from Hong Kong to China. Apparently Chinese demand was very solid, said Schnider.
The most active U.S. April gold contract rose $7.80 an ounce to $1,742.30 an ounce.
Greece and its private creditors realize the need for it to avert a financial collapse and are close to a deal on restructuring Greek sovereign debt, Luxembourg Finance Minister Luc Frieden said on Tuesday.
Silver added 0.6 percent to trade at $33.67 an ounce after rising to $33.95 on Monday, its strongest since mid-November. Platinum and palladium also firmed.
Holdings of the world's largest silver-backed exchange-traded fund, iShares Silver Trust (SLV.P) rose about 1 percent to 9,608.95 tonnes by Monday, from 9,510.70 tonnes on Friday.
Traders and investors were also watching for further developments at South African miner Impala Platinum (IMPJ.J). It said on Monday its Rustenburg operations remained shut after the majority of workers staging an illegal strike over wages failed to return to work.