Gold settled more than 1 percent higher on Wednesday, rising for the first time in three sessions as a drop in the dollar and strong physical bullion buying helped offset a continued decline in gold-backed exchange-traded fund holdings.
The precious metal and industrial commodities received a boost as the dollar fell sharply against the euro. An unexpected rise in German industrial output pared back prospects of a near-term interest rate cut in the euro zone.
Hopes of surging demand from China in coming months, after net gold inflows from Hong Kong hit a record in March, might further support bullion prices, which have been hurt by sagging investor confidence this year, analysts said.
"Indian physical demand is also strong and the combined response by consumers and retail investors to the plunge in prices since mid-April is absorbing a portion of the liquidation in the gold-exchange traded funds,'' said James Steel, chief precious metals analyst at HSBC.
Gold rose as much as 1.2 percent to a high of $1,469.90 an ounce. It was last at $1,471, up 01.3 percent, after falling over 1 percent in the previous session as the equity markets rallied.
U.S. gold futures rose $24.90 to settle at $1,473.70 an ounce, with trading volume on track to finish below its 30-day average, preliminary Reuters data showed.
(Read More: Retail Gold Buying Soars After Sharp Sell-Off)
Analysts said, however, that U.S. equities' rallies will likely pressure gold's safe-haven appeal. On Wednesday, the S&P 500 index reversed early losses to hit another intraday record high.
(Read More: The Key Levels for Gold)
"Given the reduction of tail-risk in Europe, the rising labor market in the U.S. and the low inflation rate, investors prefer equities to gold in the near term,'' bullion broker Sharps Pixley said in a note.
ETF Outflows Continue
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.42 percent to 1,057.79 tons, the weakest since early 2009.
Spot gold was down more than 12 percent so far this year after posting annual gains in the past 12 years as easy monetary policy prompted investors to buy bullion.
The physical market remained tight given a recent surge in demand for gold bars, coins and nuggets, but some analysts said volumes had come off slightly after a recent rush in Asian countries.
UBS said in a note that its index of India physical flows continued to suggest demand that is well above average.