(REUTERS) -- Gold edged higher on Thursday as expectations of an Irish vote in favour of Europe's fiscal pact lifted the euro, but this month's sharp drop in the single currency kept the metal on track for its worst May performance in 30 years.
Concerns over Spain's banking system, a surge in Italian borrowing costs and Greek elections that may determine whether it stays in the euro zone have sent investors fleeing to the safety of the dollar this month.
As well as being caught in the broader market sell-off, gold is particularly sensitive to gains in the dollar, which can dent its appeal as an alternative asset.
Spot gold was up 0.1 percent at $1,563.71 an ounce at 1148 GMT, while U.S. gold futures for August delivery firmed 10 cents an ounce to $1,565.80.
The precious metal is down more than 6 percent so far this month, its biggest May loss since a near 10 percent fall in 1982. The metal is also set to post a fourth consecutive monthly loss for the first time since January 2000.
While the possibility of a fresh round of monetary easing in the United States and demand for alternatives to the beleaguered euro could lift gold, confidence in the metal remains weak.
If we had momentum upwards, there are still plenty of people who are bullish and who would buy into that, but at the moment, you have pressure from a strong dollar, or perhaps more accurately a weak euro, and people are just a little bit wary, Mitsui Precious Metals analyst David Jollie said.
If you are looking to make a profit, and you think it will be $20 lower tomorrow, there's just no reason to buy it today.
That doesn't alter the fact that there are plenty of bulls out there. They are waiting for a trigger to send the price higher, and the question is, what's that trigger? he added. It could be quantitative easing; it could be a short period of euro stability; it could be the Greek elections.
Expectations Ireland would vote to support Europe's fiscal pact helped lift the euro from a near two-year low against the dollar on Thursday, taking some downward pressure off gold. The single currency remains vulnerable, however.
The euro is set for its biggest monthly fall in eight months, w ith some analysts expecting it to drop towards $1.20 in coming weeks as the euro zone's debt crisis deepens.
Expectations that Spain may eventually need outside help to keep its banks afloat kept its government bond yields close to euro-era highs, while safe-haven German bond prices held near record highs.
European stocks are also set for their worst monthly loss since August despite steadying on Thursday, while among other assets seen as higher risk, oil posted its biggest one-month fall since 2008 and copper was set for a third monthly decline.
Rather than acting as a safe haven and moving in line with the dollar and government bonds, as it did for much of 2011, gold has traded more in line with other commodities of late.
Investors don't have the same strategic approach to gold as before, UBS said in a note. Instead of taking a multi-week or multi-month view, much of the exposure to gold has been on an intra-day bias of late. The market is too highly correlated with risk for many participants' liking.
Gold demand from its traditional leading consumers in India has been light this year as the weak rupee lifts its cost for local buyers. However, central banks have been keen to buy gold in a bid to diversify forex reserves.
Russia, Mexico and the Philippines have all recently added to their gold reserves, and the Turkish Central Bank said on Thursday it may gradually raise the upper limit of lira required reserves that can be held in gold to 30 percent from 20 percent.
Silver was up 0.3 percent at $27.97 an ounce, spot platinum was up 0.7 percent at $1,405.24 an ounce, while spot palladium was up 0.1 percent at $603 an ounce.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, rose to a 4-1/2 month high this week at 1.12, as the white metal, which is much more exposed to the economic cycle than gold, languished.
Platinum slipped below $1,400 an ounce for the first time since mid January on Wednesday. Support for the metal has eroded as demand from carmakers, the main consumers of platinum, declined, particularly in the platinum-heavy European market.
Prices have taken little support from a spate of supply outages this year. Eastern Platinum said this week it was suspending the development of its Mareesburg open pit mine and construction of its Kennedy's Vale concentrator plant.
It will reassess the decision when there was a sustained recovery in platinum prices and the wider economic environment, it said.