Gold dropped more than 1 percent on Wednesday after the dollar rose against major currencies, but Japanese investors took advantage of a weak yen to buy back.
Gold continued to gyrate in a wide range. It opened at $669 an ounce in Asian trade but then fell to low as $662.00. Spot gold was quoted at $672.10/672.90 late in the US market. Gold rose more than 2 percent in New York as crude oil prices moved back above $70 a barrel, and as investors returned to the market following the metal's sharp drop this week.
Gold fell to its lowest level in nearly four weeks at $636.20 on Monday. The physical market lacked activity after buying interest from investors resurfaced on Tuesday, when gold at one point traded around $650 an ounce.
Ronald Lunge, director of Lee Cheong Gold Dealers in Hong Kong, said investors were cautious as the price moved above $650, adding that currencies, oil prices and base metals were likely to dictate gold's moves.
"There's both buying and selling here. Today's support is around $650 to $652 and resistance will lay ahead at $670," he said. Tokyo gold futures jumped more than 3 percent as a recent rebound in spot gold and a weaker yen sparked active short-covering following sharp falls in the last two sessions.
The most-distant April Tokyo Commodity Exchange gold rallied after falling 5 percent in the last two days from Friday's close of 2,494 yen a gram.
"We're seeing active short-covering but the market is very volatile," said Akira Doi, a director at Daiichi Commodities. "The long-term trend is bullish. That hasn't changed, but the market will be nervous about chasing too actively on rises, particularly after recent volatility."
Benchmark TOCOM gold futures ended the morning session at 2,442 yen, up 72 yen or 3.04 percent from Tuesday's close of 2,370 yen. It moved in a range of 2,421 to 2,453 yen. Many short holders, who have built up positions in the last few days, were forced to cover following a rapid rebound of gold and other precious metals, partly due to the yen's fall.
The dollar crept up against the yen as a report of possible human-to-human transmission of bird flu in Indonesia rattled investors already nervous about a shakeout in emerging markets. The dollar rose to 112.30 yen from around 112.00 yen in late New York trade.
The euro fell to $1.2780 from $1.2815. Separately, the World Gold Council said on Tuesday global demand for gold in the first quarter of 2006 totalled 835.7 tonnes, a fall of 16 percent from the year-ago quarter, as skyrocketing prices dented purchases from the jewellery sector.
But investment in gold exchange-traded funds and similar products backed by bullion and bought by retail and institutional entities jumped 23 percent to 108.7 tonnes, the report said. Gold hit a peak of $730 an ounce on May 12 it's highest since the 1980's record of $850 an ounce before profit taking by investors kicked in. Platinum fell to $1,309/1,317 an ounce from $1,315/1,325 in New York despite sharp gains in Tokyo futures.
Sister metal palladium also fell to $354/361 an ounce from $359/365. Silver dropped to $12.94/13.04 an ounce from $13.17/13.27.
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