Gold prices gained more than two percent to touch their highest in nearly four weeks on Monday, tracking strong gains in New York and firm oil prices, dealers said.
But trading remained thin, exposing gold to sharp price fluctuations as US markets would be closed on Monday and Tuesday for the Independence Day holiday.
"Gold is still benefiting from the rally late last week, resulting from a less hawkish Fed statement and the accompanying dollar weakness," said Yingxi Yu, analyst at Barclays Capital, referring to last week's statement by the US Federal Reserve signalling a softening of monetary policy.
"Volatile conditions are likely to continue in the third quarter, largely sideways trading, and possibly regaining a clear upward trend sometime in the fourth quarter."
Spot gold hit a high of $625.05 an ounce before easing to $622.20/623.20 by 1326 GMT, against $612.60/613.60 last quoted in New York on Friday.
The metal gained more than 3 percent in the US market at the end of last week as the dollar fell when tame inflation data backed up signs the Federal Reserve might have arrived at the end of its two-year campaign of tightening monetary policy.
On Monday the dollar traded around New York levels late on Friday versus the euro. A weak dollar makes gold cheaper for holders of other currencies and lifts demand for the metal.
"We remain very positive but the market will trade very erratically. We would expect another one or two wide rallies in the coming days, followed by some corrections," said Frederic Panizzutti, analyst at MKS Finance.
Gold also had support from firm oil prices, which rose near $74 a barrel as optimism over US economic growth increased.
"The US holiday...is likely to keep trading conditions on the thin side the first half of this week, however the improved fundamental and technical outlook in gold should see gold settle back into a gradual up-channel," James Moore, analyst at TheBullionDesk.com, said in a report.
Analysts noted reports suggesting that some central banks should buy gold.
A senior government economist said China should take advantage of any weakness in bullion prices to build up its official gold holdings as part of a strategy for diversifying its foreign exchange reserves.
The United Arab Emirates said the central bank was sticking with plans to convert up to 10 percent of its currency reserves into euros and could convert up to 10 percent into gold.
"While we are sceptical of the feasibility of large-scale central bank purchases, such news could nonetheless provide some support for sentiment," Barclays Capital said in a daily note.
Other precious metals tracked gold's gains.
Platinum rose to a four-week high of $1,242/1,247 an ounce, up from $1,224/1,234.
Palladium rose to $325/329 an ounce from $314/320. Silver hit a three-week high of $11.20 an ounce before falling to $11.17/11.23, versus $10.96/11.06 in New York.
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