Gold prices moved back and forth in choppy trade on Tuesday partly influenced by movements in the dollar, and analysts said the metal might witness an uptrend after the end of the current holiday season.
Palladium tracked gold's movements, jumping to a 2-1/2-month high before drifting lower. Other metals also traded in a range.
"The market is thin. There are a few players playing. Funds are very much sidelined," said Peter Hillyard, head of metals sales at ANZ Investment Bank.
"They (funds) are essentially still long and they are just sitting on their positions and not doing anything. So what you have got is the day-traders controlling the market."
"That's what's driving the market, making it choppy."
Spot gold hit a high of $628.50 an ounce before falling as low as $620.10. It was quoted at $622.75/623.75 by 1456 GMT, against $625.60/626.40 in New York the previous day, when it gained more than 2 percent.
Gold might start reflecting a clear trend after the end of the holiday season this month, as traders, funds and physical buyers raise their activities in the seasonally-active period starting from September, dealers said.
"The tension in the Middle East region is likely to buoy both gold and crude oil prices, as the uneasy truce in Lebanon is still relatively fragile and as the UN deadline on Iran's nuclear ambition has moved that situation firmly back into the spotlight," Standard Bank said.
It could take three months to fill the post-war "security vacuum" in southern Lebanon and even unintended breaches of a truce could restart fighting between Israel and Hizbollah, the United Nations said on Tuesday.
Palladium rose its highest level since June 7 on technical buying and good demand from jewellery makers, but failed to retains gains, dealers said.
The metal rose as high as $343.50 an ounce before falling to $335/340, against $342/348 in the US market late on Monday. Prices spiked to a four-year high of $406 in May.
Dealers said the metal, used in jewellery and in automotive catalytic converters, had potential to rise again.
"It looks as if palladium is still sought after at the moment," said a German trader at a leading investment bank, adding prices were expected to remain firm in the near term. Some dealers in Hong Kong said there was a pick-up in demand for palladium and platinum in China.
Platinum rose to $1,237 an ounce before falling to $1,226/1,232, down from $1,230/1,235 in the US market. Silver fell to $12.13/12.23 an ounce from $12.29/12.39.