Gold rose in Europe on Monday as physical buying lifted prices off last week's three-month low, but the market remained vulnerable to further selling, traders said.
A firmer dollar and a general sell-off across asset markets prompted investors to trim positions last week, notably in riskier areas such as gold.
Spot gold rose as high as $652.85 an ounce before easing to $650.60/651.10 by 1352 GMT, still higher from New York's late quote of $648.20/649.70 on Friday, when it fell as low as $644.40.
"There's been a reasonable amount of physical demand," said Simon Weeks, director of precious metals at ScotiaMocatta. But he, with other traders, said the market remained vulnerable to further selling and would need to move back over the $654/655 level to get out of the danger zone in the short term.
"Credit and debt market developments are moving against gold...If equities rally, as we think they will, this too will be negative for gold," Canadian economist Martin Murenbeeld said in a weekly gold comment.
"The dollar needs to reverse course and decline again...or it could be a long and uncomfortable summer for gold investors."
Weeks also noted that holdings in the New York gold exchange traded fund fell by seven tonnes on Friday to 469.91 tonnes. This ETF accounts for 80 percent of the holdings in the various ETFs listed on exchanges around the world.
Traders said a failure to hold above $650 would open up gold to even deeper losses down towards the 200-day moving average of $638.25 - last visited in mid-March."Gold is up because there is some recovery in share prices and the decline seems to be quite overdone. There is some bargain-hunting. We are just going to watch external factors now for a bit," said Matthew Turner, analyst at Virtual Metals.
"But people are a bit nervous because of the way gold fell on Friday," he added.
In industry-related news, the biggest mine workers union in top gold producer South Africa said most of its members would probably not be able to join a sympathy strike planned for Wednesday in support of striking civil servants.
Lower world gold prices lifted Turkey's gold jewellery exports by 17 percent to 37.6 tonnes in the first five months of 2007 from last year's 32.1 tonnes.
Abu Dhabi's gold sales volume rose about 10 percent in May from last year.
Other metals were steady. Spot platinum rose to $1,289/$1,294 from New York's $1,281/$1,285, while palladium was at $366/$370 an ounce versus $365.50/$369.50.
Spot silver was at $13.05/13.08 an ounce compared with $13.06/$13.09 in New York.
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