Gold faltered towards the European close on Tuesday after rallying towards psychological resistance at $400 an ounce and hitting a high last seen in April at $398.60 on safe-haven buying.
The market came back as strong US manufacturing data started turning the dollar around, but dealers said current prices were probably a good buying opportunity for another crack at higher levels.
Initial dollar losses, which make gold cheaper for non-US investors, started to reverse as US manufacturing chugged to a full year of expansion in May and pushed factory employment to its highest level in 31 years.
The Institute for Supply Management said its index of national factory activity rose to 62.8 in May from 62.4 the prior month. That beat forecasts for 62.0 in the index, where a reading above 50 points to growth. In January the index stood at a two-decade high of 63.6.
"We saw a bit of fund buying on the (New York COMEX) floor but then prices came back after the US figures. I'm still pretty friendly to the market and this is possibly another buying opportunity," one dealer said.
Spot gold was quoted at $396.15/396.90 per troy ounce by 1426 GMT, compared with $393.80/4.55 late on Friday in New York before closure for the US Memorial Day holiday on Monday.
The euro fell to $2.2205/08 against the dollar after hitting $1.2265 earlier.
Bullion's safe-haven status for investors was highlighted by weekend attacks in Saudi Arabia and continuing violence in Baghdad.
Dealers said the market was poised for a strike at $400, last seen on April 20.
"Currently, it seems as if the gold price is caught below its 100-day-moving average at $396.40. However, given the positive momentum it has developed, a test of this resistance or even 400 might lie ahead," Dresdner Kleinwort Wasserstein said in a daily report.
In other metals, silver was also ripe for further gains, dealers said, after performing strongly with gold last week.
"The 'industrial precious metal's' technical outlook is positive with support provided by the 200 day moving average at $5.98 and a solid foundation in place at $5.80," Standard Bank London said in a daily report.
"Key resistance remains in place at $6.25, with a break above this level likely to target the gap on the charts evident between $6.60 and $6.80," it added.
Spot silver was at $6.09/$6.12, flat from late Friday in New York.
Spot platinum was at $840.00/$845.00 from $828.00/833.00, while spot palladium stood at $250.00/$255.00 from $244.50/250.50.
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