A weaker dollar against most currencies also boosted the demand for the bullion as an alternative asset.
Moreover, safe haven demand for the precious metal rose as rising political unrest in Egypt sparked fresh concerns over Middle East tensions.
Despite the yellow metal's sharp rebound, traders remain cautious over the outlook on concerns that the US Federal Reserve may taper stimulus in the near-term.
At the MCX, Gold futures, for the August 2013 contract, closed at Rs 25,981 per 10 gram, up by 1.22 per cent, after opening at Rs 25,769, against a previous close of Rs 25,669. It touched an intra-day high of Rs 26,075.