Gold prices drifted lower on Tuesday, taking cues from a shaky dollar, but analysts said they saw more upside for the metal in the coming weeks. Platinum pared losses after falling two percent as investors were encouraged by a report by Johnson Matthey, the world's largest distributor of the metal, forecasting a small market deficit this year and in 2007.
Spot gold fell to $620.00/621.00 an ounce by 1611 GMT after rising as high as 628.90, against $625.20/626.20 late in New York on Monday. "It has been a shaky market, with hesitations on the upside. We need further consolidation to build a strong base between $600 and $630 before we can move to the next step," said Frederic Panizzutti, precious metals analyst at MKS Finance.
"Recent weeks have shown that gold has further potential for strength here. We just need an external factor to generate the next buying wave. The dollar can be an incentive."
The dollar remained choppy, falling on a decline in core producer prices that bolstered the view the US economy is still losing momentum, but paring losses later.
A weaker US currency makes dollar-priced gold attractive for holders of other currencies. "While we continue to see stronger gold and silver prices on a one month view, it is clear ... that considerable speculative money has entered the market over the past three weeks," UBS Investment Bank said in a daily report.
"If gold and silver are to make further gains from here it will probably require a weaker US dollar and/or a recovery in oil prices."
The physical sector saw both gold buying and selling from investors and jewellers. But sales from Indonesia, Southeast Asia's main consumer, subsided, keeping premiums for gold bars steady at around 60 US cents an ounce in Singapore.
Goldas, a member of the board of directors Cetin Binatli, told Reuters that Turkey's gold jewellery sales to the United States during the Christmas season will suffer from a rise in gold prices and cheaper Chinese products.
Turkey is the world's fourth largest gold jewellery exporter. "I am bit lost about direction. There's still some interest from India but they are not buying much," said a dealer in Singapore, referring to the world's largest gold consumer.
"General market sentiment still appears to be bullish, although we will not be convinced until $636 an ounce is breached," said Darren Heathcote of Investec Australia.
Platinum fell as low as $1,172 an ounce and was last quoted at $1,175/1,179, compared with $1,200/1,204 in New York. Palladium eased to $317/322 an ounce from $324/328, while silver fell to $12.75/12.82 from $12.86/12.93 an ounce in the US market.
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