Gold rose above $1,620 an ounce on Thursday, extending four sessions of gains, as the euro held its ground against the dollar in choppy trade ahead of this weekend's Greek elections, with a surge in Spanish borrowing costs stoking risk aversion.
This week's gains were firmly underpinned by speculation that the Federal Reserve would unveil a fresh round of quantitative easing, which roughly translates into printing money, after weak retail and inflation data on Wednesday.
Spot gold was up 0.2 percent at $1,620.50 an ounce at 0740 EDT, while U.S. gold futures for August delivery were up $2.10 an ounce at $1,621.50.
Spot prices are up 1.6 percent this week, but trading is cautious ahead of this weekend's Greek elections.
The conservative New Democracy party, which wants to soften the bailout's austerity measures without risking an open clash with Europe, is running neck-and-neck with SYRIZA, which wants to ditch the deal with the European Union and International Monetary Fund.
The result of the vote will be very important not just to gold but across the whole financial markets next week, RBS analyst Nikos Kavalis said. If we get a disappointment, we can expect a massive sell-off across the board.
(But) if we get a good result we won't necessarily have a massive rally, simply because people aren't necessarily convinced that even if we have a pro-austerity coalition, we are in any way out of the woods.
Concerns over the euro zone debt crisis are rife. Spanish 10-year government bond yields hit 7 percent for the first time after Moody's cut the country's credit rating to just one notch above junk.
The euro briefly hit a session low on the news, but quickly recovered to rise 0.1 percent versus the dollar. German Bund futures were choppy after spending two sessions under pressure.
German bund yields have... been rising, behaving more like periphery bonds rather than a safe haven. The spread versus UK gilts - another European sovereign bond that has been considered safer than the periphery - has narrowed substantially this week, UBS said in a note.
While it is too early to conclude that German bunds are losing their safe haven status, UBS said: such a scenario... would mean investors would be on the lookout for new 'secure' places to park their money. Given the much-reduced list of alternatives, gold would be one of the top options.
Europe's top shares fell as much as 1 percent after Moody's downgraded Spain, exacerbating the cautious mood among investors who are bracing themselves for the outcome of the Greek election over the weekend.
Demand for physical gold in Asia stayed sluggish while higher gold prices lured some selling, but most market participants preferred to stay on the sidelines as they waited for a clear direction on spot prices.
Top gold consumer India has entered the monsoon season, marked with a slump in gold purchases. China's jewelry market is also entering the summer lull, with no major festival in sight until early October.
India's gold and silver imports were down 52 percent year-on-year in May, according to a senior trade ministry official, citing provisional data that showed the country's trade deficit widened over the previous month.
Among other precious metals, silver was down 0.3 percent at $28.85 an ounce, while spot platinum was up 1.3 percent at $1,477.74 an ounce and spot palladium was up 0.2 percent at $618.40 an ounce.