Gold retained its firmer trend in Europe on Tuesday afternoon despite the dollar making up some ground against the euro, but prices remained stubbornly below the $410 level despite earlier expectations for the metal to crack that level.
Gold hit a near-two-week high earlier in the day at $409.75 when the euro looked to be heading back towards $1.28, which was well above the two-month low of $394.30 reached late last week.
Traders said dollar moves versus the euro were still dictating direction in the gold market, with a weaker US currency making gold more attractive to holders of other currencies. The euro was quoted at $1.2693/99 at 1608 GMT.
"Gold is maintaining its presence because of the (weakness of) the dollar. It moves up and down according to the whims and fancies of the dollar," said Peter Hillyard, head of metals sales Europe with ANZ Investment Bank.
"There are no other external factors out there to go for. I believe the market's stuck somewhere in a $407/412 range and that's all we're going to do."
Spot gold was quoted at $408.00/408.50 a troy ounce by 1609 GMT, up from New York's close on Monday of $406.25/407.00.
Traders were looking to US Federal Reserve Chairman Alan Greenspan's Congressional testimony on Wednesday for its potential impact on the dollar.
They are waiting to see whether Greenspan will give any hints on the interest rate outlook.
"We expect the market to remain quiet ahead of Greenspan's congressional testimony on the economy...however, the recent liquidation of some long positions and a weaker dollar may entice further fund buying in the near future," Rothschild said in a bullion report.
Traders and analysts were looking for investment funds to switch back to gold after the recent washout had reduced some of their long positions in the metal.
Kevin Crisp, precious metals analyst with Koch Metals Trading, said the market would remain prone to volatile moves due to the large speculative flows of money.
"The dramatic moves...highlight just how much speculative money has come into commodities," he said.
"There is this cycling of froth from one market to the next. Then you have a blow-off in the markets, but underlying it all there is still obviously a lot of money in there. It is maybe money that is going to stay in (gold) longer than many anticipate."
Silver fell back despite gold's gains to trade at $6.37/6.40 from New York's $6.40/6.42.
Platinum was indicated at $833.00/838.00, off earlier levels but up from New York's $831.50/836.50. Palladium remained stuck at $233.00/238.00 from $233.50/239.50.