Gold reversed course to trade above $650 an ounce in late European trade on Wednesday as price dips attracted bargain hunters and physical buyers. Gold hit a high of $650.60 after falling as low as $642.60.
It was quoted at $650.00/651.00 by 1554 GMT, against $646.00/647.00 in New York late on Tuesday, when prices gained more than one percent on a rebound in global shares.
"After the pretty severe correction, prices are building a base above $640. It seems that investors are looking at the price dip in a positive manner to establish longer-term positions," said James Moore, analyst at TheBullionDesk.com.
It was a matter of waiting to see how equity markets and oil prices moved in the next few days, but a sharp decline in stocks would lift gold in the longer term and increase investor interest, he added.
Gold has gained 2.8 percent since dropping to a six-week low of $632.30 on Tuesday, but prices are still down nearly six percent from a nine-month high of $689 hit last week. "It remains to be seen whether the two days of recovery seen in gold markets proves to be the end of high volatility and panic that gripped the markets last week," said Pradeep Unni, an analyst at Vision Commodities Services DMCC in Dubai.
Gold's bounce has raised hopes it was back on track to test new highs again after a surging yen and tumbling global stocks forced risk-averse investors to sell portfolio assets, including gold, to cover their losses in the past week.
European shares rose in volatile trade after corporate news lifted indexes and US stocks rallied overnight, while a tentative recovery stalled in Tokyo.
"I think the bad time is over. Gold prices will come back to $650 and $670 within 10 days to two weeks," said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo. Bargain hunters, jewellery makers and retail investors would offer support for gold, he said.
Lower prices generated moderate demand for gold in India, the world's largest consumer of the metal. On the supply side, gold output in South Africa, the world's largest producer, slid 7.5 percent last year to 8.845 million ounces (275,119 kg), the lowest since 1922, the Chamber of Mines said.
Dealers await the release of US non-farm payrolls for February on Friday for fresh cues on the dollar's direction. Gold generally moves in the opposite direction of the dollar and is often seen as a hedge against oil-led inflation.
Oil rose to $61 a barrel as the prospect of further declines in gasoline inventories in top consumer the United States outweighed concern over the health of its economy.
In other metals, platinum hit a high of $1,194 an ounce before slipping to $1,189/1,194, down from $1,191/1,196 in New York but off Monday's one-month low of $1,159. Palladium rose $1 to $346/351, while silver edged up to $12.97/13.02 an ounce from $12.91/12.96 in New York.
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