Gold inched higher after hitting a 2-1/2 week low early on Thursday as the dollar and global shares fell alongside uncertainty about Greece and an unexpected rise in US jobless claims. Spot gold was up 0.1 percent at $1,188.30 an ounce by 2:26 pm EDT (1826 GMT) after falling to $1,180.55, the lowest since May 11. US gold futures for June delivery settled up $2.50 at $1,188.10 an ounce.
European Central Bank Vice President Vitor Constancio underlined the gravity of the situation facing Greece, talking openly about a possible default that would be the first of its kind in the eurozone. A worsening of the Greek debt crisis could trigger demand for gold coins and bars. Gold is usually seen as a hedge against political and financial risk, although the impact on demand from wider political worries is usually short-lived.
The dollar turned down 0.2 percent against a basket of currencies. In the United States, data showed initial claims for state unemployment benefits rose to a seasonally adjusted 282,000 for the week ended May 23. This followed a sharp drop in gold prices on Tuesday, when US data showed strong core business spending, new home sales and consumer confidence.
The robust US releases added to views that the Federal Reserve will raise interest rates soon. "The market has been responding to fairly convinced statements from (Fed Chair) Janet Yellen that they are ready to implement a tighter monetary policy," said Bart Melek, head of commodity strategy for TD Securities in Toronto. "We're going to be pretty range bound for the next little while," Melek said. "The reason is we're waiting for the Fed." Higher US interest rates increase the opportunity cost of holding non-yielding bullion.
"Expectations of an easing of the tightening proved wrong so far ... but the Fed is clearly ruling out next year," Macquarie analyst Matthew Turner said. In the physical markets, China's net gold imports from main conduit Hong Kong tumbled to an eight-month low in April, data showed. Silver was down 0.1 percent at $16.65 an ounce. Platinum fell 0.5 percent to $1,111.75 an ounce, while palladium lost 0.1 percent to $783.50 an ounce.