(REUTERS) -- Gold prices snapped three days of losses to rise on Wednesday, helped by the euro paring losses versus the dollar, which eased negative currency effects on the precious metal, and by a tentative recovery in demand for physical gold at lower prices.
Spot gold was up 0.1 percent at $1,675.96 an ounce at 1555 GMT, while U.S. gold futures for April delivery were up $5.20 an ounce at $1,677.10.
The metal is down more than 6 percent since late February, having dropped sharply from the year's highs after U.S. Federal Reserve chairman Ben Bernanke held off signaling a further round of U.S. monetary easing in a key speech.
The price drop elicited a response from the consumer sector, where buying in China and India has picked up this week, albeit modestly, and holdings of metal in exchange-traded products remain at record highs, reflecting investor demand for gold.
Gold prices have been feeling the weight of the stronger dollar over the last week and the weight of the equity markets as well, but at the moment it's more about the physical market, Barclays Capital analyst Suki Cooper said.
Although the macro-environment is still very gold-supportive, in the nearer-term it's going to be the physical market and whether that enables prices to consolidate enough so that investment demand can retake the reins, she said.
The euro, a drop in which pushed gold below a key support level on Tuesday, triggering a near 2 percent fall in prices, was broadly steady against the dollar, but could come under pressure as uncertainty grows over Greece's deal to restructure its debt and avert default.
A clutch of Greek pension funds and some foreign investors are holding back on the deal, raising fears that Greece may not secure an agreement with private creditors to cut its mountainous debt by the Thursday deadline.
Bad news on the deal could hurt gold in the short term. It tends to suffer from a stronger dollar, which makes commodities priced in the U.S. unit more expensive for other currency holders, and reduces the metal's appeal as an alternative asset.
Gold's positive correlation with the euro-dollar exchange rate stood at 55 percent on a 25-day rolling average. Its 20 percent positive correlation with U.S. stock markets suggests it is also trading in line with assets seen as higher risk.
RISK APPETITE DWINDLES
German government bond futures held near record highs on Wednesday as markets remained nervous that Greece would not win sufficient support this week for a debt restructuring, risking a chaotic default. EUR>
U.S. stocks edged higher on Wednesday, a day after Wall Street suffered its worst selloff in three months and as a report showed the private sector added more jobs than expected.
On the physical markets, gold traders in India, the world's biggest buyer of bullion, continued to purchase the metal as prices stayed near their lowest in a week, dealers said. The rupee's drop to seven-week lows kept a lid on buying, however.
Activity in the world's second largest bullion consumer, China, was also hit and miss.
While dips have encouraged some buying from China, interest has been rather sporadic, instead of the consistent support that gold seems to need right now, said UBS in a note. Our client flows were two-way and Shanghai Gold Exchange volumes for the two gold contracts have eased back to average levels.
Holdings of gold in exchange-traded products rose to a record 70.827 million ounces on Wednesday and are up by more than 600,000 ounces in the last month.
Elsewhere South Africa's Gold Fields (GFIJ.J), the world's fourth largest gold producer, said 85 percent of its workforce had heeded a call for a 1-day nationwide strike.
Among other precious metals, silver was flat on the day at $32.84 an ounce, also recovering from a sharp slide on Tuesday when it dropped more than 4 percent, its largest one-day decline this year.
Platinum group metals also fell in that session by the most this year, with platinum down more than 3 percent and palladium falling 5.5 percent. Both rebounded on Wednesday, with platinum up 0.9 percent at $1,622.00 an ounce and palladium up 1.9 percent at $676.50 an ounce.
Workers at Impala Platinum's Rustenburg mine, which was hit by a large-scale strike earlier this year, largely ignored the one-day work stoppage elsewhere in the republic.