Gold eased off an earlier high on Monday afternoon, as safe-haven buying linked to an announcement from North Korea that it had conducted its first nuclear test, dried up. However, higher oil prices underpinned the market and some analysts said gold had potential to advance in the near term.
"Oil prices have firmed a little bit and also we saw the nuclear test from North Korea overnight," John Reade, precious metals analyst at UBS Investment Bank, said.
"I think there are lots of reasons why you want to be long in gold at the moment ... also because we continue to see extremely strong physical demand," he said, referring to long positions held by investors who expected prices to rise.
Spot gold hit a high for the day of $580.75 an ounce in early European trade but subsequently retreated to $575.80/576.80 by 1524 GMT, still up from $572.40/573.40 in New York late on Friday.
Traders said gold's strong recovery at the end of last week - it bounced two percent from peak to trough - had also aided sentiment.
"As long as we can stay above $575...it might have a go at (the high) again," said Simon Weeks, director of bullion trading at ScotiaMocatta.
A successful break of Monday's high ($580.75) could see gold target $600 again, a level it slid through a week ago, but a significant breach of $575 could equally push prices back towards the low $560s.
Although gold saw a knee-jerk reaction higher to news that North Korea conducted an underground nuclear test on Monday, many traders and analysts said the oil market remained the key factor for bullion.
"Over the mid-term...we stick to our view that energy prices will continue to fall and drag gold with it," Dresdner Kleinwort's research team said in a note.
Oil rose to near $61 a barrel as the Organisation of Petroleum Exporting Countries moved closer to cementing a deal to cut 1 million barrels per day of output.
Other precious metals tracked gold. Silver rose to $11.24/11.31 an ounce from $11.08/11.15 late in New York.
Platinum gained to $1,082/1,087 an ounce from $1,073/1,078 in New York. Palladium rose to $300/304 an ounce from $296/300 late in the US market.
Norilsk Nickel, the world's largest nickel and palladium miner, raised its forecast for 2006 platinum and palladium output due to improved recovery of metal from its ores.