Gold reversed losses and rose more than 2 percent to above $700 an ounce on Wednesday as Japanese futures rebounded after falling by the 60 yen daily limit the previous day.
Other precious metals also gained, with platinum aided by record-high platinum futures on the Tokyo Commodity Exchange.
Spot gold hit a low of $685.80 an ounce before gradually regaining $700 and hit a high of $707.50 still below last week's 26-year high of $730 an ounce. Gold was last quoted at $689.90/690.90 in New York on Tuesday, when it had risen more than $7 an ounce after a decline in the dollar triggered buying.
"In fact, people are talking about strategic positioning, which is basically some selling.
But I guess the market follows Tokyo and there's a buy up there," said a dealer in Singapore. "There's also some demand on the physical side, such as from Thailand," said the dealer, referring to one of Southeast Asia's main consumers.
Benchmark gold futures on the Tokyo Commodity Exchange, currently April 2007, rose 23 yen per gram to 2,539 yen, having fallen by the daily limit to 2,516 yen a gram on Tuesday. Dealers said bargain hunters, who have been waiting for the price to drop, as well as some physical buyers were in the market to buy gold, used in jewellery and for investment.
"In the physical market, a lot of people have been waiting for the dip, particularly for gold bargain hunters physical buyers who would buy gold and hold for a long period of time," said Its Toshima, Japan and South Korea regional director of the World Gold Council.
Dealers expected a volatile trade ahead with movements of the dollar against other currencies likely to offer leads. The dollar hovered within sight of an eight-month low against the yen after weak housing and inflation figures suggested the two-year run of rising US interest rates is nearly over.
The dollar was down at 109.41 yen, moving back towards an eight-month low of 109.31 yen struck at the end of last week. The euro was little changed at $1.2874 after climbing 0.5 percent in the previous session.
Platinum rose to $1,312/1,320 an ounce from $1,295/1,303 late in New York. Key platinum futures on the Tokyo Commodity Exchange rose to a record 4,505-yen per gram as active bargain hunting by speculators followed sharp falls on Tuesday.
Sister metal palladium rose to $379/387 an ounce from $369/374. Silver edged up to $13.77/13.87 an ounce from $13.59/13.69.
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