Gold prices rose on Thursday as the dollar fell against the euro after Greece agreed to fiscal austerity measures, but analysts said the metal could pull back due to the continued challenges of the euro zone debt crisis Bullion broke ranks with lower US equities and posted further gains after Greek leaders clinched a long-stalled deal on reforms and austerity measures needed to secure a bailout.
Analysts said the fact that the European Central Bank and the International Monetary Fund have not said what concrete steps they might take to avert a ruinous Greek default could pressure bullion prices. "Gold prices remain hostage to shifts in investor sentiment regarding the chances of a deal being reached. This uncertainty is injecting greater volatility into the gold market," said James Steel, chief commodity analyst at HSBC.
Spot gold was up 0.6 percent at $1,744.39 an ounce by 11:32 am (1632 GMT). US gold futures for April delivery were up $15.50 an ounce at $1,746.80. Gold has swung back and forth this week as optimism over a bailout deal for Greece was countered by economic worries in other euro zone countries.
The metal was underpinned by news the ECB held interest rates at a record low, adding to gold's inflation-hedge appeal after the US Federal Reserve said last month it would keep interest rates near zero until at least late 2014. The euro hit a two-month high against the dollar and traders said it looked set to stay above key support at $1.30 for now.
"The euro-dollar is now gaining because of positive news for the euro. Gold priced in dollars is piggy-backing on this," said Bayram Dincer, analyst at LGT Capital Management.
Dincer, however, said the possible containment of uncontrolled default in Greece and other euro zone countries should put pressure on gold's safe-haven appeal. Gold prices are up more than 10 percent this year, buoyed by the view that global monetary policies will remain extremely loose as other central banks take the Federal Reserve's lead.
The metal failed to benefit earlier this week from jitters over European debt - jitters which sent gold to a series of record highs last year - as these were offset by currency moves. "Gold has been trading along with everything else. It doesn't seem to be a risk trade at the moment as much as a dollar/euro trade," said Citigroup analyst David Wilson.
Among other precious metals, silver was essentially flat at $33.96 an ounce. Silver has been one of this year's best-performing commodities, up more than 20 percent this year. Spot platinum inched up 75 cents at $1,661.24 an ounce, while spot palladium was up 0.2 percent at $711.47 an ounce. Platinum has narrowed its unusual discount to gold to about $80 an ounce, from over $200 earlier this year.