Gold was trapped in a range on Thursday after briefly trading above $651 an ounce on short covering, but dealers pointed to an array of supportive factors for the precious metal. Spot gold hit a high of $651.40, just below a one-week high of $654.55 hit on Wednesday, before dropping to $650.75/651.50.
That was still above $649.50/651.00 traded in late New York dealings on Wednesday, when gold added $4 on a weaker US dollar and a jump in oil prices during the day.
Prices of crude oil, gold and copper the three main assets for commodity investors rose on Wednesday after positive supply-demand factors combined with the weak dollar following the US Federal Reserve's decision on Tuesday to leave rates unchanged at 5.25 percent.
"The Fed is not raising the interest rates, so this is a good sign for the whole commodities spectrum. The bulls should be very pleased with this development. When you have higher interest rates, it's basically not good for gold," said a dealer in Singapore.
"I think it's only a matter of time before things start to pick up again. We can't rule out the market may fall to $620 but once people are comfortable with the price, they will slowly start investing again," he said.
Some dealers said gold was expected to trade in a range of $635 to $670 in the next few days, with war in the Middle East and strong crude oil prices elevating the metal's safe-haven appeal.
Oil has soared 25 percent this year on political tensions that trader's fear could affect oil supply, including the war between Israel and Hizbollah guerrillas.
Gold is way above lows hit in 1999 near $250 but also well below its 26-year peak of $730 touched in May. The metal spiked to a record high of $850 an ounce in 1980. Benchmark gold futures on the Tokyo Commodity Exchange rose 36 yen per gram to 2,427 yen, tracking a rally in New York's Comex market.
But the physical market lacked activity as investors and jewellery makers waited for the gold price to stabilise. Dealers would also watch the currency market for direction. "It's a bit quiet today.
There was initial selling by the Japanese," said Ronald Lunge, director of Lee Cheong Gold Dealers in Hong Kong, adding that the dollar weakness eventually encouraged some buying.
The euro rose to $1.2880 from $1.2860 in late US trade, inching towards a two-month high of $1.2910 struck last week. The dollar eased to 115.15 yen from 115.35 yen in late on Wednesday US trade.
Platinum fell to $1,246/1,250 an ounce from $1,248/1,253 late in New York. Sister metal palladium hardly moved at $322/326 an ounce. Silver edged up to $12.55/12.62 an ounce from $12.54/12.59 late in New York.