Comex gold fell to a seven-month low on Thursday but ended firmer on short-covering prompted by data showing the US economy grew a bit slower with more inflation than expected in the first quarter.
Silver pared losses after extending on Wednesday's skid to a new low on fears that a clampdown on bank lending in China will slow its economy and undermine metals demand.
US first-quarter gross domestic product expanded at a 4.2 percent annual rate, according to an advance report.
That was less than the 5.0 percent expansion rate expected and not much faster than the previous quarter's 4.1 percent.
But markets were more worried about a surprise 3.2 percent jump in the GDP personal consumption expenditure price deflator, which brought forward expectations of an interest rate increase by the Federal Reserve.
"That maybe singled a little inflation, so those were a bit positive for gold, and you can see the dollar is softer too," said analyst Tom Boustead at Reface Inc June gold settled up $1.20 at $387.10 an ounce. It traded as high as $388.50 after hitting $377, its lowest price since October 20.
Gold lost $13.20 on Wednesday, after Chinese Premier Wen Jiabao rocked commodity markets by saying China needs to put the brakes on its economy. China had been the main destination this year for metals, grains and other raw materials, enabling commodity markets to enjoy their best run since the 1970s.
A 1,213-contract rise in gold open interest on Wednesday indicated outright selling on top of long liquidation. Some of these new short positions were bought back on Thursday.
On Thursday, China ordered some smaller banks to halt lending for several days, which analysts said was the latest move to cool overheated growth.
"A lot of the selling in gold over the last 36 hours was not only due to what's been happening in China," said Graham Leighton, vice president at bullion dealer Society Generale, "but was also in expectation about what GDP was going to be.
Then, when it came out worse than expected, we rallied. Spot gold rose to $386.25/7.00 from the prior close at $385.75/6.50. London's afternoon fix was at $386.
Gold has declined 14 percent since April 1, when June futures hit a 15-year high at $433.
Long liquidation by commodity funds has also slashed the price of silver by one-third since it peaked this month at $8.50 an ounce, a 16-year high.
"You get the usual overreaction," a floor broker said about the decline in gold. "Some funds might have doubled up yesterday. They might have got out of their longs and gone short."
May silver closed off 4.7 cents at $5.82 an ounce, trading between $5.985 and $5.545, its lowest price since December 8.
It dropped 36.8 cents on Wednesday. Silver has industrial uses in electronics and photography, and often takes its cues from base metals like copper, which also fell sharply on China worries on Wednesday.
Spot silver was quoted at $5.79/83, off from $5.85/88 late on Wednesday. It fixed in London at $5.57. July platinum settles $16 lowers at $780.50 an ounce, bouncing from a contract low at $756.
It fell $37 the previous session. Spot platinum was quoted at $785/790. Platinum hit 24-year highs this month above $900. June palladium fell $7.55 to $246.05 an ounce. Spot last fetched $242/247.
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