Gold and silver held steady on Tuesday, supported by light physical buying interest, but activity was subdued as market players sought direction after volatile trading in the past couple of days.
Spot gold was at $622.75/623.50 an ounce, compared with $622.80/623.80 late in New York on Monday.
The levels were well below the 25-year peak of $645.75 hit last on Thursday. "I think people have lost direction at these levels," said Ellison Chu, senior vice president of Standard Bank Asia in Hong Kong. "(There's) some physical interest in silver and gold, but not much."
With the high volatility, the wider spread for bids and asks in the gold and silver market has made it difficult for speculators to trade, reducing liquidity during Asian hours, he said. Gold traded in a range of $20 an ounce on Monday, compared with an average $27 in the previous three sessions, but much higher than the $10 in the past weeks.
Chu said people would keep their eyes glued to oil prices, the dollar and the situation in the Middle East. In Japan, the benchmark gold contract on the Tokyo Commodity Exchange, February, dropped by its daily 60-yen limit to 2,321 yen ($20.29) per gram as sharp falls in New York prompted selling by Japanese retail investors.
TOCOM February 2007 silver futures fell by 18 yen to 466.2 yen per 10 grams. "Short-term sentiment is depressed by falls in overseas markets and a stronger yen is also capping gold prices," said Takashi Ogura, manager at Kanetsu Asset Management.
"But the long-term trend is still bullish. The market is down now to correct recent sharp gains, but once the correction is over prices will rise again." On Tuesday, the bullion market was supported by the dollar's weakness against Asian currencies, especially the Japanese yen, but a decline in oil prices eased concerns over inflation and put downward pressure on the precious metals complex.
In the currency market, the dollar inched towards a new three-month low against the yen, extending losses made the previous day after finance officials around the world cranked up pressure on China to revile the yuan.
A range of investment and private funds increasingly seeing gold as a hedge against the depreciation of the dollar have pushed the metal's price up as much as 25 percent this year. Higher oil prices stoke inflation, which usually increases demand for gold as a key hedging instrument.
US June light crude futures were 10 cents lower at $73.23 a barrel in electronic trading. On Monday in New York, prices fell $1.84, sliding from a $75.35 record high set on Friday, as the Organisation of the Petroleum Exporting Countries kept its output ceiling of 28 million barrels per day unchanged at talks by ministers in Doha on Monday.
Silver recovered moderately, with prices up at $12.05/12.15 an ounce from $11.86/11.96 in New York.
Barclays Capital Inc has deposited 1.5 million ounces of silver with a custodian to back its planned iShares Silver Trust, said Barclays Global Investors in a filing with US regulators on Monday.
Silver prices have soared as much as 67 percent this year, hitting $14.68 last on Thursday, on expectations an exchange-traded fund under review will boost demand.
Platinum fell to $1,111/1,116 an ounce from $1,118/1,123 in New York, while palladium eased to $350/355 an ounce from $353/358.