Silver recovered from a fall below the psychologically important level of $10 an ounce on Tuesday, while gold rose on renewed buying interest from jewellers and speculators in Asia.
Spot silver fell as low as $9.97 an ounce before rebounding to $10.02/10.05 an ounce, steady with late New York levels.
Speculation the US Securities and Exchange Commission would soon approve a silver-backed, exchange-traded fund fuelled last week's rally through the $10 barrier to 22-year highs of $10.31. The market is still waiting for a ruling from the commission.
Dealers said silver tracked movements in gold, which shrugged off declines in Japanese futures and rose as much as $3 an ounce as physical buyers resurfaced after the price fell from a three-week high of $570.50 hit last week.
Spot gold rose to $556.80/557.70 an ounce from $555.60/556.50 late in New York. Gold hit a 25-year high of $574.60 in February, which many analysts see as the next major resistance level, although $560 could be tough to break.
"At this level, the market seems to be volatile, having a difficult time getting over $560. Each time you get a little bit of a stronger dollar and a weaker oil price, it will just encourage you to take a bit of a profit," said a dealer in Hong Kong.
"But next week or the week after, you are going to see the reserval in terms of what's happening in oil and what's happening in the dollar. You will see a recovery back in the gold price but for now, you can see a further consolidation," he said.
Benchmark gold futures on the Tokyo Commodity Exchange, currently February 2007, fell 27 yen per gram to 2,137 after gold futures dropped in New York on chart-based selling. In the physical market, dealers noted buying from jewellery manufacturers and speculators, said Ronald Lunge, director of Lee Cheong Gold Dealers in Hong Kong.
"There's some short covering interest at the lower end," said Lunge, who expects gold to closely watch movements of the dollar against other currencies ahead of a Federal Reserve meeting on interest rates later this month.
The dollar rose against the yen for a third straight day as more investors come round to the view the Bank of Japan won't raise interest rates anytime. The dollar also drew support from St. Louis Federal Reserve President William Poole's comments late on Monday that the Fed might have to raise US rates further if economic growth is consistently strong.
In Asian trade, the dollar edged up to 117.70 yen after rising nearly 1 percent in the previous session. The euro eased to $1.1985 from around $1.2015 in late US trade on Monday. Bullion dealers expect volatile trade ahead for gold.
"I don't think it's going to be easy for gold to go up to $560, given yesterday's sharp drop. There will be selling pressure at $559," said another Hong Kong dealer. "At this sort of level, I think dealers in Europe will be on the selling side.
Silver has stabilised at the current level, but people are wondering whether the buying interest is finished," he said. Platinum rose to $1,042/1,047 from $1,039/1,044 an ounce in New York. Sister metal palladium eased to $292/297 an ounce from $294/298.
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