Gold rose to its highest level in more than a week on Monday, driven by speculative buying and a return of investor confidence after the recent sell-off. Silver and platinum hit two-week peaks, while palladium prices climbed to their highest level since March 9.
Spot gold rose as high as $656.25 an ounce and was quoted at $652.60/653.60 by 3:30 pm EDT (1930 GMT), against $651.90/652.90 in New York late on Friday.
Most-active gold futures for April delivery on the COMEX division of the New York Mercantile Exchange settled up 40 cents at $654.30 an ounce. It traded in a tight $5 band between $652.50 and $657.10.
"The market has pretty well recovered. Today what really prevails is the positive sentiment for gold and the fact that gold has broken $650 and managed to remain above that level," said Frederic Panizzutti, metals analyst at MKS Finance.
"That has opened up a new range between $650 and $680, probably paving the way for a move higher." Gold hit a six-week low of $632.30 on March 6, when tumbling global stocks and a rising yen forced risk-averse investors to sell gold to cover losses. It fell to a one-week low of around $636 last week on fears about another global flight from risk.
"On a short-term basis, the metal doesn't look too bad. However, it has to rise above $658 to confirm the current positive trend," said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Germany's Heraeus.
Investors focused on a two-day meeting of the US Federal Reserve that starts on Tuesday. Worries that the US subprime mortgage crisis could hurt the broader economy and prompt the Fed to cut interest rates sent the dollar down to a three-month low against a basket of currencies in the previous session.
Analysts said the net long position in the gold market stood at about 14.4 million ounces, down from a recent peak of 21.6 million in late February, but the drop reported last week was lower than some people had expected.
"With somewhat less long liquidation than we expected we have not received the clear signal that gold has bottomed. Although positions are greatly reduced, there could be more long liquidation to come," UBS Investment Bank said in a report.
"Gold may have another dip lower on further long liquidation if broader asset market weakness continues, but we continue to forecast higher one-month and three-month gold prices at $700 and $750/oz respectively."
The market ignored moves by China, which raised interest rates over the weekend for the third time in less than a year to trim credit and investment growth and cool down its economy. Dealers said the announcements were expected.
Greg Weldon, chief executive of weldononline.com, said that China's rate hike could be supportive to gold prices, because the government did not actually cramp down on credit growth and failed to tighten monetary supply.
"They are raising rates but they are not keeping pace with the rise of inflation, and the rise of bank lending ... They are not acting fast enough or more aggressively enough to have an impact," Weldon said.
In other metals, platinum was last quoted at $1,230/1,235, versus $1,220/1,225 at its previous close in New York on Friday.
"There is now a very strong technical resistance just below $1,230 an ounce. Should this line be crossed, there is a danger that the price could very quickly jump back above $1,250 and thus to the highs seen at the end of February," Wrzesniok-Rossbach said.
Silver rose to $13.15/13.18 from $13.13/13.16 an ounce late in New York on Friday, while palladium was up $3 at $352/357 an ounce compared with its previous close.
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