Gold prices were firm on Thursday afternoon in Europe but off earlier highs when the market shot up over one percent in the immediate aftermath of a series of deadly blasts in London. Spot gold peaked at $428.50 a troy ounce as the news broke, but subsequently fell back to trade at $425.00/425.70 an ounce by 1441 GMT. Bullion closed in New York on Wednesday at $423.40/424.10.
"We went up in the middle of all the chaos, and then came back down - a classic kneejerk reaction," one trader said.
"I'm thinking it will probably hang around here, although people are waiting to see whether anything more happens this evening."
The explosions in London's transport system hacked up to four percent off European shares as investors flocked to safe-haven assets like government bonds and gold.
Four blasts ripped through London during rush hour on Thursday morning in attacks Prime Minister Tony Blair called "barbaric". British Interior Minister Charles Clarke called the explosions "terrorist attacks".
Before news of the explosions hit the market, analysts had said they expected gold to firm as it had held well in the face of heavy liquidation earlier in the week.
Bullion hit its highest in 16-1/2-years late last year but has failed twice so far in 2005 to revisit that level.
The precious metal has attracted light but steady buying from consumers in Asia and the Middle East since falling sharply at the end of last week.
"I am still friendly towards gold. I think these sell-offs don't hurt the market at all," another trader said.
"As long as it can hold this $420/22 level, I think there's a good chance it could break back up again."
Traders were also keeping an eye out for the latest US jobs report due to be released on Friday.
The payrolls report is expected to show 188,500 new jobs were created in June. That would be a big improvement on 78,000 in May, and would help cement expectation that the Federal Reserve will continue raising interest rates.
Silver was also drawn higher, tracking gold's firm tone, to move back over $7.00 an ounce for the first time since heavy selling last week.
Spot was last at $7.00/7.03 an ounce from $6.94/6.96.
Platinum was little changed at $863.00/877.00 from $862.00/865.00, while palladium rose to $179.00/183.00 versus New York's previous $176.00/180.00.