Rising concern about Ireland's finances pushed the premiums investors demand to hold the country's bonds to its highest to benchmark German Bunds since the launch of the euro.
This put the euro under broad pressure earlier, helping push the dollar index to its highest in two weeks.
Such dollar strength would normally dent gold's appeal to non-U.S. investors but this negative correlation retreated to its weakest in two months, suggesting investor discomfort lies with the single European currency and its member nations.
Spot gold rose 0.7 percent to $1,402.20 an ounce by 1433 GMT, some 1.7 percent off Tuesday's all-time peak of $1,424.10.
In its most volatile day of trade since May, gold dropped more than $30 from this peak in the previous session, triggered by a sharp sell-off in U.S. silver futures caused by a 30 percent increase in margins.
"In the past few days, what we've seen is the dollar and gold moving in the same direction and the last time that happened was leading up to the erosion in confidence in some peripheral EU countries and this has occurred again," said HSBC analyst Jim Steel.
"The markets are still on the defensive, they haven't been rescued yet by the EU issue, but it has probably helped put the brakes on the decline," he said.
The correlation between spot gold and the dollar index, on a rolling one-month basis, retreated to minus 0.48, from minus 0.61 the day before, indicating gold's tendency to move in the opposite direction to the dollar has lessened. A positive correlation suggests the two assets move in lock-step.
In the second quarter of the year, when the euro zone debt crisis unfolded, gold and the greenback often moved in tandem as investors sought refuge from non-euro denominated assets.
BACK TO GOLD
Investors have been delving into gold once more as evidenced by holdings of bullion in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, holding steady over the past couple of weeks, just above 1,290 tons.
Gold priced in euros was last up 0.7 percent at 1,015.95 euros, while Swiss franc-priced bullion was up 1.2 percent at 1,358.07 francs and sterling-priced gold was flat on the day at 869.45 pounds an ounce. It was under some pressure from the rise in sterling after the Bank of England's inflation report.
Currency tensions are high on the agenda at this week's G20 summit of advanced and developing nations in Seoul, where U.S. President Barack Obama sought to swing the spotlight back onto global imbalances, while an early draft statement cited by Dow Jones Newswires echoed an earlier finance minister's pledge to move toward more market-determined currency rates.
Meanwhile, World Bank President Robert Zoellick said on Wednesday he was not advocating a return to a gold standard, days after he suggested the world's largest nations consider gold as an indicator to help set foreign exchange rates.
Meanwhile, silver was the top performer of the precious metals complex with a 3 percent rise, following its most volatile trading session since early 2009 the day before.
The CME Group, which owns the COMEX exchange, said it would raise the margin requirement for silver futures to $6,500 a contract from $5,000 previously, implying a leverage ratio of 21.5, to curb some of the volatility that has developed.
"It is important to put yesterday's price action into context: despite its violence, Tuesday's pullback only brought precious metals prices back to Monday's levels and should therefore be seen as a clearing-out of intraday froth," said UBS precious metals strategist Edel Tully, in a note.
"Pullbacks aren't a bad thing - they test the conviction of existing longs and the eagerness of those waiting on the sidelines."
Silver was at $27.70 an ounce, up by 3 percent on the day, while holdings of metal in the iShares Silver Trust, the world's largest silver ETF, hit a new record high, indicating strong investor demand. In the platinum group metals, palladium rose by 2.2 percent to $705.50, easing back from nine-year highs of $740.72 in the previous session.
Platinum was almost flat at $1,760.74 an ounce, off Tuesday's two-year high of $1,806.5.
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