Gold rose 0.5 percent on Wednesday, snapping a three-day losing streak, as renewed euro zone worries and hopes the Federal Reserve will continue its loose monetary policy triggered bullion buying.
The metal reversed earlier losses, as U.S. equities slipped after soft demand at an Italian debt auction stirred fears about the financial stability of the euro zone.
Also underpinning gold was a plan by Cyprus to restrict capital flow as it tries to avert a run on its banks after agreeing a tough rescue package with international lenders.
(Read More: Relax, China Creates a Cyprus Every Week: LSE Chief)
Gold, however, was on track to rise around 1.7 percent in March on resurgent safe-haven bids and hopes of a prolonged Fed stimulus. It will mark the metal's first monthly gain after it had posted losses in the last five months.
"While March seems to have been a month for moderation of economic activity, our view remains one of improving global growth. We believe these recent trends are likely to reverse, leading to modest weakness in gold,'' said Robert Haworth, senior investment strategist at U.S. Bank Wealth Management.
Spot gold rose 0.5 percent to $1,606 an ounce, breaking three consecutive sessions of losses.
U.S. gold futures settled up $10.50 at $1,606.20, with trading volume about 20 percent above its 250-day average, preliminary Reuters data showed.
Higher turnover was partly because of the April-June contract rollover ahead of April's first-notice day on Thursday.
Investors favored gold and sold equities on Wednesday after data showed contracts to buy previously owned U.S. homes fell in February, held back by a shortage of properties.
The 25-day inverse correlation between gold and the S&P 500 index strengthened to a negative 0.5 on Wednesday, their strongest link since June 2012, Reuters data showed.
The metal's inflation-hedge appeal also received a boost after two top Fed policymakers said the U.S. central bank should continue its bullion-friendly bond-purchases at least through 2013.
Silver inched up 0.1 percent to $28.73 an ounce.
Thin Trading Ahead
Precious metals trading was expected to thin ahead of the Good Friday holiday when most major markets will be shut.
Liquidity should return next week, when a European Central Bank policy meeting and the U.S. non-farm payrolls report will be the main economic events.
Reflecting the stalled momentum in gold, holdings of , the world's largest gold-backed exchange-traded fund, were unchanged for a third session on Tuesday after record monthly outflow in February.
Platinum group metals investor now digested news the world's two biggest platinum producers, Russia and South Africa, have agreed to join forces to cope with an excess supply of the metal.