Asian shares took a hit on Tuesday from sliding oil prices and political uncertainty in Greece. On Monday, both the Dow Jones industrial average and S&P 500 suffered their biggest one-day declines in about three months.
There is increasing speculation that Greece might exit the euro zone if a left-wing party that has vowed to end austerity measures and erase a big portion of its debt wins Jan. 25 elections as widely expected.
Spot gold had ticked up 0.1 per cent to $1,205.40 an ounce by 0325 GMT, adding to the previous session's 1.3-per cent gain.
"There is a bit of talk about safe-haven buying given the spike in uncertainty regarding the future of the euro zone," said MKS Capital trader James Gardiner.
The general risk-off sentiment in the markets should help bullion hold its recent gains, he added.
Prices could see near-term resistance around the 100-day moving average of $1,216, while support is seen near $1,180, ScotiaMocatta's technical analysts said.
In a sign of improving investor sentiment, holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.25 per cent to 710.81 tonnes on Monday, though still near a six-year low.
Other data on Monday showed that hedge funds and money managers raised their net long positions in gold and silver futures and options for the first time in three weeks in the week to December 30.
But the strength in the dollar could cap any rallies in gold. A robust dollar makes bullion more expensive for holders of other currencies.
The dollar index, a measure of the greenback's strength against a basket of six major currencies, was trading close to a nine-year peak reached on Monday, while the euro hovered near its lowest since 2006.
Another closely watched factor is demand from top consumer China. Buying has picked up in recent weeks ahead of the Lunar New Year holiday, when gold is bought for gifts, and demand is likely to stay strong until the holiday in February.
Premiums on the Shanghai Gold Exchange were about $5 an ounce over the global benchmark on Tuesday. Though they are lower from the $7 seen on Monday, the premiums are still seen by dealers as a sign of good demand in China.
Copyright: Thomson Reuters 2015