Gold was firmer in Asia on Friday as investors took advantage of current low prices to cover back positions but worries about a possible increase in US interest rates lingered, dealers said.
Spot gold was trading at $387.25/388.00 an ounce, up from $386.25/387.00 last quoted in New York, and off a 5-/1/2 month low of $377.50 hit on Thursday.
But some dealers said gold's outlook was shaky because the recent sharp drop had damaged investor confidence in the precious metal. Gold has moved away from a 15-year peak of $430.50 an ounce, hit on January 6.
Initially hit by fund liquidation, gold received a fresh blow on Wednesday when Chinese Premier Wen Jiabao said China needed to take steps to rein in its economy, raising fears of a slowdown in the country's demand for commodities.
China's strong demand for metals, grains and other raw materials has given commodity markets their best run since the 1970s.
Dealers said a firmer dollar also threatened the prospects for gold. US gross domestic product data on Thursday came in below forecasts but did little to dent the belief that the Federal Reserve would raise rates by August.
Higher interest rates tend to boost yields of US assets, thus increasing demand for the dollar. A stronger dollar makes dollar-priced gold less attractive for holders of other currencies.
"I could see some physical demand picking up slightly," said Beth His Wash, a dealer at United Overseas Bank in Singapore, the entry point for much of Southeast Asia's bullion trading.
"I think the sentiment has finally changed to a little bit bearish for gold. But in a longer term, I think gold still has the potential to go further up," she said. The benchmark February 2005 gold contract on the Tokyo Commodity Exchange (TOCOM) fell 21 yen to 1,374 yen per gram as the market reopened after a one-day national holiday.
The yen weakened slightly as Japanese share prices fell on worries about rising US interest rates and a possible slowdown in China's economy. The dollar was around 110.19 yen, a touch higher than late New York levels.
The euro was little changed at around $1.1969, versus $1.1964 in late US trade. In other precious metals, silver was quoted at $5.86/5.90 an ounce, versus $5.79/5.83 in New York.
Platinum stood at $793/798 an ounce, versus $785/790 in New York.
Sister metal palladium was at $246/251 an ounce, versus New York's $242/247.
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