By Jan Harvey
LONDON (Reuters) - Gold edged higher on Thursday as tensions over Greece's negotiations with its creditors helped snap four sessions of decline, though gains were limited by caution over the metal's longer-term outlook.
Expectations that the Federal Reserve is set to carry out the first U.S. interest rate increase in nearly a decade, boosting the opportunity cost of holding non-yielding bullion, has weighed on gold this year, keeping it in a narrow range.
Spot gold was up 0.1 percent at $1,175.60 an ounce at 0919 GMT, while U.S. gold futures for August delivery were up $2.20 an ounce at $1,175.10. The spot price fell to a two-week low of $1,171.03 on Wednesday.
The metal has held largely between $1,160 and $1,230 since mid-March, struggling to break higher despite an ostensibly bullish rise in tensions over Greece.
"We've been hearing about the Greek story for so long that it's no longer big news. People are frustrated with the lack of performance on the part of gold," said Afshin Nabavi, head of trading at MKS.
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"We attempted this week to break $1,200 and failed, and that doesn't look so good," he said. "With gold, either people wait for it to go much lower so it's a bargain, or for it to get more expensive (so it has investment value). Now, people are waiting for lower numbers to buy."
Gold has faced additional pressure from a stronger dollar, which hit a two-week high against the euro earlier this week and firmed against the single currency on Thursday.
European shares fell as investors cut their exposure to assets seen as higher risk, such as stocks, on concerns that Greece could be edging closer to a default. Safe-haven German Bunds rose.
Greece's ruling Syriza party dismissed reform demands from the country's international creditors as "blackmail" on Thursday as crisis talks to avert a debt default and a euro exit entered a critical phase.
"We suspect that despite the current drama surrounding the Greek talks, an agreement will ultimately be reached, but given the political brinkmanship, there is always the chance that things could go wrong," INTL FCStone said in a note.
"Once again, we think the sidelines are the best option at this stage."
Silver was down 0.5 percent at $15.85 an ounce, spot platinum was up 0.3 percent at $1,074.49 an ounce, and spot palladium was down 0.2 percent at $691.97 an ounce.
(Additional reporting by Naveen Thukral in Singapore; Editing by Dale Hudson)