Gold perched above $1,600 an ounce on Wednesday, retaining most of its gains from the previous session as prices were supported by persistent worries over Spain's surging borrowing costs.     

Gold has attracted occasional safe-haven flow in the past few weeks, after moving in tandem with riskier assets since late last year as the euro zone debt crisis squeezed liquidity and rattled financial markets.     

'In the short term, gold prices may remain very volatile following the ebb and flow in the news on Spain and euro zone crisis,' said Hou Xinqiang, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.     

'But expectations on monetary policy have shifted a little after the bad numbers on the US job market and China's recent rate cut raised hopes on further easing, which will help gold climb after the near-term fluctuation.'     

Spain's 10-year bond yields hit their highest in the euro-era on Tuesday, edging closer to the 7 per cent danger level and leaving investors worried about Madrid's access to the bond market, while Fitch Ratings downgraded 18 Spanish banks less than a week after it cut the country's sovereign debt rating.

Investors are focusing on a string of events later this month, including Greek elections on June 17 that may decide whether the country will exit the euro and a US Federal Reserve policy meeting next week which could shed light on the central bank's stance on monetary easing.     

Spot gold was little changed at $1,608.39 an ounce, after rising 0.8 per cent in the previous session.     

US gold futures contract for August delivery edged down 0.3 per cent to $1,609.70.     

The euro, which has been a major influence on gold prices in recent months, was stuck in a range as investors shied away from the market ahead of an Italian bond sale on Thursday and Greece's weekend election.       

The price rise towards $1,620 overnight attracted some scrap selling from Asia, but the flow has slowed as prices ease, dealers said.     

'We see some light buying from investors at current level, which is seen as too expensive by jewellers,' said a Singapore-based dealer, adding that gold bar premiums were quoted at 80 cents to $1 an ounce above London prices.     

'There is not much action in the market as everyone is waiting for more news out of Europe.'     

Spot silver lost 0.4 per cent to $28.82, having attempted to breach $29 earlier for the third straight day.     

'Silver remains subdued as it approaches the $28.75-$29.25 resistance zone,' said Triland Metals in a note, adding that $27.5-$28 will lend support to silver which has a dual nature of being a precious and an industrial metal.      

'The market is leaning towards the industrial side of its split personality and consequently rallies, for now, are muted.' – Reuters