Precious metals bounced back on Thursday on strong technical buying and a weakness in the dollar, with gold gaining more than 3 percent and silver jumping 6.6 percent at one point. But gold pared some gains in late European and US trade and traders did not rule out a further correction lower in the near term.
"The bears have got the upper hand at the moment and they will carry on pushing it down," a precious metals trader in London said. "I am not overly bearish in the longer-term, but in the short-term we will see some retracement before we move up again."
Spot gold rose as high as $576.30 an ounce after falling to $553.75 in Asia. It ended New York trade at $566.50/567.50, sharply up from $558.20/8.90 on Wednesday.
Dealers said that buyers had returned after gold almost touched a technical support level of $540 on Wednesday. At its three-month low of $543, gold was down 26 percent from its 26-year peak of $730 hit last month.
The market also got some support from a rise in oil, which moved up toward $70 a barrel, as the market focused once more on resilient demand from the world's biggest consumer the United States and supply risks.
Gold is generally seen as a hedge against inflation.
"While the market is showing some signs of having bottomed, we do not believe that gold is necessarily out of the woods yet," John Reade, precious metals analyst at UBS Investment Bank said in a daily note. "We suspect that financial markets remain wary of further shocks."
UK fund manager Legal & General said commodity markets were likely to fall further as the focus of global growth shifted from resource-hungry emerging economies and as the US Federal Reserve removed liquidity to contain inflation.
Silver rose to $10.22 an ounce before edging to $10.00/10.10, compared with $9.59/9.69, while platinum climbed to $1,160/1,170 an ounce from $1,137/1,145.
Palladium was quoted at $295/300 an ounce, against $285/293 a day earlier.
In market news, the New York Mercantile Exchange said it would decrease margins for its gold and silver futures contracts, effective with the close of business on Friday.
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