Gold roared back to life in Europe on Friday afternoon, gaining two percent at its peak, after feeble growth in US July payrolls sank the dollar.
Buying returned swiftly in reaction to the dollar's slide, whipping gold back over $400 an ounce to a two-week peak. A weaker dollar makes gold cheaper for non-US investors.
By 1445 GMT, spot gold was quoted at $399.00/399.50 a troy ounce, off its peak at $400.75, but still up over $6 on New York's late quote on Thursday of $392.60.393.10.
"It's probably a bit like a Roman colosseum out there, heads and bodies everywhere," one trader said, referring to the sharp move in a market starved of liquidity due to thin summer trading conditions.
US non-farm payrolls added a puny 32,000 jobs in July, much lower than forecasts for 228,000 new jobs to be created.
Traders said gold had subsequently back-tracked on some light selling.
"People are now positioning themselves in case the euro corrects. We have really got to wait until Monday and see how the Asian market reacts," one said.
Some analysts were looking for further short-term gains after gold hammered through several resistance levels.
"My basic feeling is that breaking through $397 is still meaningful enough in the short-term (over next week or two) to see us test higher, not lower," Kamal Naqvi, precious metals analyst with Barclays Capital said.
Renewed global security concerns and oil prices striking fresh highs were also cited by analysts as factors underpinning gold.
"Should the dollar again come under pressure, another wave of buying and short-covering gold would very likely result in a rally toward $405," Frederic Panizzuti, senior vice-president of MKS Finance, said.
Gold is still some way however from its 15-year peak of $430.50 scored in early January and nearly matched in April.
Financial markets are now focusing on next Tuesday's Federal Reserve Open Markets Committee meeting to set interest rates.
Before the payrolls report, the FOMC was widely expected to raise interest rates by a quarter of a percentage point to 1.5 percent. While the weaker-than-expected payrolls number is not likely to alter the central bank's plans, it will almost surely slow the pace of hikes thereafter.
Gold's sharp rise spilled into silver, the star performer of the week, having gained nearly 8.5 percent from trough to peak. Spot hit a 3-1/2-month peak at $6.86 before slipping back to $6.77/6.80 from $6.73/6.76.
Platinum was little changed at $825.00/830.00 from $826.00/831.00, while palladium edged up to $210.00/215.00 versus $209.00/214.00.
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