NEW YORK (Reuters) - Gold prices closed higher on Thursday for the first time in four days but the precious metal came off session highs, tracking the euro as it fell against the U.S. dollar on mounting doubt about whether Greece will keep the single currency.
U.S. gold's benchmark June futures settled about half a percent higher at $1,557.50 an ounce, retracing gains that took the contract as high as $1,577.70.
The fickle euro made trading volatile, with a band wider than $26.
Investors were extra cautious ahead of a longer weekend in the United States, which observes the Memorial Day holiday on Monday. Analysts said this made trading more choppy as U.S. gold traders changed positions taken earlier in the day as they worried about what might happen with Greece between COMEX's close on Friday and its reopening on Tuesday.
The spot price of gold, which tracks trades in bullion, was slightly higher late on Thursday at $1,558.25 an ounce, well off the session peak of $1,577.50.
During the day's downdraft, the spot contract fell to as low as $1,551.15 while June touched $1,551.
"Gold had a pretty good short-covering rally today but it was extremely volatile because it followed whatever news that were coming out of Europe on Greece," said George Gero, vice-president at RBC Capital Markets Global Futures in New York.
On COMEX, Gero said, trading was further complicated by the imminent expiry of June as the market's benchmark and its scheduled replacement by the August contract.
Confidence in the euro remained fragile as it hovered at just above near two-year low against the dollar.
The euro initially rose against the dollar on Thursday after data showed U.S. manufacturing growth slowed in May, weighed down by recession in parts of Europe. <FRX/>
But the single currency retraced its gains after dire German manufacturing and business climate data indicated that even Europe's top economy wasn't immune from the region's crisis.
In gold's case, the precious metal got an early price lift after International Monetary Fund data showed another rise in central bank gold holdings in April, after the largest purchase by the Philippines in more than four years.
Gold has been volatile since hitting 4-1/2 month lows last week, as worries of a potential Greek exit from the euro zone and concerns over other bloc members like Spain kept the euro under heavy pressure.
The correlation of gold to the euro/dollar exchange rate held close to its highest in a month, meaning that a move in the euro was more likely to see an identical move in gold than as recently as two weeks ago.
Silver tracked gold higher to rise about 2 percent to above $28 ounce.
Spot platinum fell for a third session, shedding nearly half a percent to $1,413.70 an ounce, bringing its the week-on-week decline to 2.5 percent and the fall for the month to 9.6 percent.
Platinum prices have fallen after data showing imports into Switzerland, a major PGM clearing hub, at their lowest in over four years in April, largely due to a steep decline in shipments from top producer South Africa.
Palladium was down by 1.4 percent to $582.98 an ounce.
Additional reporting by Jan Harvey in London; Editing by David Gregorio