Gold bounced back on Monday, tracking a rise in Japanese futures, but a firm dollar ahead of a meeting of the US Federal Reserve capped gains and the metal struggled to recapture the $650 level hit last week.
"It continues to drift within $640 to $650...possibly would remain within the range ahead of the Fed meeting. There's no clear direction as for today," said Peter Tse, a dealer at Scotia Mocatta in Hong Kong.
Physical buyers were also refraining from buying gold at the current levels, said Tse. Spot gold hit an intraday high of $647.70 an ounce and was at $645.80/646.80 by 0639 GMT, up slightly from $645.00/646.00 late in New York on Friday, when it had dropped more than $1 on profit taking and a strong dollar.
Gold rallied to its highest since early August at $654 on Thursday, mainly on technical buying, but the metal remained well below a 26-year high of $730 hit last May.
Shares in Australian gold miners were mixed. Newcrest Mining Ltd rose 2.11 percent, gold and copper miner Oxiana dropped 3.72 percent and Lihir Gold Ltd slipped 1.62 percent. Benchmark gold futures on the Tokyo Commodity Exchange, currently December 2007, rose as high as 2,555 yen per gram, matching an eight-month high hit on January 24 because of a weak yen. The contract ended 4 yen per gram higher at 2,548 yen.
Tocom gold has climbed more than 8 percent since this year's low of 2,355 yen hit on January 9. Spot gold could find resistance at the previous high of $654, while support held around $638 an ounce, said Tobin Gorey, commodities analyst of Commonwealth Bank of Australia in Sydney.
Gold's 14-day relative strength index (RSI) rose above 70 last week, indicating the market was overbought, as the metal traded up to $654, but has been slipping since to 69.80 on Friday and around 67 on Monday. "I can't see it simply getting up a lot more if the US dollar is still gathering a little bit of strength. I think the market has been going basically sideways for long enough," he said.
The dollar hit a four-year high against the yen on the back of solid US economic data which helped convince more investors that an interest rate cut by the Fed may not be necessary this year. The US Federal Reserve's Federal Open Market Committee, which sets interest rates, begins a two-day meeting on Tuesday.
The dollar rose to 121.88 yen - its best level since December 2002. The euro was at $1.2903, near a two-week low of $1.2877 hit on Friday, when the dollar extended gains on robust data from the US housing and manufacturing sectors. In other precious metals, silver edged up to $13.32/13.39 an ounce from $13.31/13.38 late in New York. Platinum fell to $1,169/1,174 an ounce from $1,171/1,177 late in New York. Palladium was steady at $346/351 an ounce.
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