Gold bounced back in Europe on Wednesday after falling 1.5 percent in Asian trade, with the metal getting support from firm oil, the Middle East conflict and a change in track by the dollar. Other metals were mixed, with silver falling to its lowest in a week before rising and palladium extending gains.
"Gold and silver showed a weak performance in the overnight market after US interest rate decision since investors feared a moderation in economic growth," Alexander Zumpfe, trader at Germany's Heraeus, said.
"However, both metals found good support on their lows and were bought already towards the end of the European session. This trend continues in New York so far and is accompanied by a weaker dollar. In the short term, the uptrend is intact."
Gold fell to a one-week low of $635.75 an ounce before rebounding to $650.00. It was quoted at $649.70/651.20 by 1443 GMT, against $645.50/646.25 late in New York on Tuesday.
The dollar weakened after a volatile overnight session of position squaring that followed the Federal Reserve's move to keep interest rates on hold for the first time in two years.
As expected, the Fed kept rates at 5.25 percent, saying the economy had slowed and inflation pressures were likely to moderate, though it kept the door open for future hikes.
"While the rate pause has generated some initial profit taking, the prospect of further rate hikes by the ECB (European Central Bank) and Bank of Japan will continue to drive investors away from the dollar and seek alternative investments," James Moore, analyst at TheBullionDesk.com said in a report.
UBS Investment Bank revised its short term metals forecast, saying gold may trade at $630 in one month and $680 in three months. It earlier saw prices at $600 and $650 respectively.
"We do not see an immediate trigger for a move higher although we continue to expect the metal to trade higher in the fourth quarter of 2006 and into 2007," it said in a report.
Firm oil and the Middle East conflict provided support to gold, which is seen as a safe-haven metal, dealers said.
"General market sentiment remains bullish but the precious metal will need fresh catalysts to break through the $650 mark," Investec Australia said in a daily report.
In industry news, Newcrest Mining said it would lower the amount of gold it hedges to about 50 percent of production, from 75 percent to 80 percent, by mid 2007 in the hope of capturing higher spot prices for bullion.
Platinum was up $1 at $1,242/1,245 an ounce, while palladium rose to $322/327 from $316/321. Silver was at $12.47/12.57 an ounce, versus $12.23/12.28.