Gold hardly moved on Tuesday as firm Tokyo futures and a pick up in demand in India helped it defy pressure from a euro that was weakened after European finance ministers rejected an offer by Greece's private creditors to help restructure its debts.
Investors are closely watching the outcome of a two-day Federal Reserve meeting which ends on Wednesday for any signs that interest rates will stay lower for longer, as that could put some pressure on the US dollar.
Gold barely changed at $1,676.19 an ounce by 0238 GMT, having risen to $1,681.16 on Monday, its strongest since December 12, on technical buying. Gold hit a record around $1,920 an ounce last September.
Any signs of further easing initiatives in the United States could provide support for gold prices, said Natalie Robertson, an analyst at ANZ.
"That's something to look forward to. We have been seeing some buying from India, actually quite firm buying from India in the last few days because of the wedding season there."
The wedding season in top consumer India started last week and lasts through April, pausing for a few weeks deemed inauspicious for nuptials. Gold jewellery is a popular gift at marriages and festivals in India.
"Despite India's import duties increasing as well as prices trending a little bit higher in the last few days, we are still seeing some firm orders from India," said Robertson.
The most active gold contract on the Tokyo Commodity Exchange, December, rose as high as 4,167 yen a gram, its biggest gain since mid-December. The gains offered support to cash gold despite slow trading during the Lunar New Year break.
"The general public are buying gold. Sentiment is still bullish," said a dealer in Tokyo, referring to purchases from private investors in Japan.
Central bank gold purchases are expected to have hit another record in 2011, while demand for gold-backed exchange-traded products fell to less than half of that seen in 2010 last year, according to a report from the World Gold Council on Monday.
The euro retreated from a three-week peak against the dollar on Tuesday and looked vulnerable to extending its pullback after talks to reduce Greece's debt burden suffered a setback.
Euro zone finance ministers on Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of Greek default.
Some investors are waiting for the outcome of the US Federal Reserve policy meeting, which starts later on Tuesday.
While no policy change is expected, the Fed will likely show that its policymakers expect to start hiking interest rates again only in the first half of 2014, more than five years after chopping them to near zero, a Reuters poll of leading Wall Street economists showed.
In other markets, the Nikkei hit its highest level in nearly three months on Tuesday on hopes that a Greek debt deal will still be reached, while US crude futures extended gains on concerns over supply.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, slipped about 0.41% on Monday from Friday, while that of the largest silver-backed ETF, New York's iShares Silver Trust remained unchanged in the same period.
