Gold regained its footing on Monday on firm energy prices and after last week's falls ignited bargain hunting, but investors were unwilling to take large buy positions ahead of year-end holidays. Spot gold hit a high of $798.50 an ounce, also aided by early rounds of technical short covering.
It later slipped to $792.80/793.60 an ounce, steady from $792.70/793.50 late in New York on Friday, when it dropped more than $4. Gold has lost more than 6 percent in value since a rally to its highest since January 1980 at $845.40 on November 7 - hit by a combination of year-end book squaring, a rebound in the dollar, oil's falls from record highs and declines in stock markets.
"It's not a trending market. It's driven by fear quite often. I don't know if $800 will be the top but I think we are in a much wider range than that. It looks to me something like $785 to $814," said Darren Heathcote of Investec Australia.
"There's so much uncertainty about what the year-end holds for many people. If these stock markets carry on going down, then I suspect it will amass some initial sell off in gold to cover margin calls," he said.
The euro rebounded to $1.4442 after falling to a seven-week low of $1.4382 on trading platform EBS in early trade. The dollar inched down to 113.12 yen but held near a five-week high of 113.60 yen reached on Friday.
The dollar had gained as surprisingly strong US consumer prices data crushed some expectations for deeper Federal Reserve rate cuts, after it slashed overnight rates last Tuesday by a quarter-point to 4.25 percent.
US consumer prices surged in November by the most in two years and highlighted the Fed's concern that inflation risks remain, prompting investors to see less chance of a rate cut at the central bank's next meeting in January.
In theory, a firm dollar reduces gold's appeal as an alternative investment to currencies and bonds, but rising energy prices boost the metal's safe-haven role as a hedge against inflation.
Crude oil rose for the first time in three days on Monday, as a US winter storm and Turkish bombing of Kurdish rebels in the northern Iraq countered concerns about a weaker US economy. "It's the same old story," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "The market is too choppy. $780 to $820 seems to be the range for the rest of the year," said Leung, adding that there was buying interest from bargain hunters and jewellers at lower levels.
COMEX gold futures gave up early gains in Asia, with the most active February contract trading down $1.3 an ounce at $796.7 from the New York settlement on Friday. The benchmark October 2008 contract on the Tokyo Commodity Exchange ended 20 yen per gram lower at 2,905 yen after hitting a high of 2,929 yen.
In other markets, Tokyo's Nikkei fell 1.71 percent, while MSCI's measure of other Asia Pacific stocks shed 3.31 percent amid worries the Fed may be unable to make deeper rate cuts to prevent a possible recession.
Gold traditionally has been used by investors as protection against economic and political uncertainty. But it can sometimes behave much like other financial assets because of the growing role of commodities in diversified portfolios. Platinum was unchanged at $1,475/1,480 an ounce, and palladium fell to $347/352 an ounce from $352/356 in New York. Silver gained to $13.81/13.86 an ounce from $13.80/13.85 late in New York.
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