Gold traded just below the previous day's two-week highs on Wednesday, but sentiment was friendly and traders said the precious metal had a good chance of adding to recent gains. Spot gold was quoted at $657.90/658.50 an ounce by 1426 GMT, compared with $660.70/662.20 in New York late on Tuesday, when it rose to $661.40, its highest since June 7.
"We are struggling a little bit around the $660 level. Our expectation is that any dips below $660 will be bought," said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment Bank.
"I am feeling positive towards the market. I think we have done the downside work and are now working its way higher," he said, adding the metal might face selling at technical levels of $662 and $665 on its upward journey.
Investors would continue to watch external markets such as currencies and oil prices for direction, traders said. The dollar was steady against the euro, but oil prices eased further away from a 10-month high above $72 a barrel. Gold is generally seen as a hedge against oil-led inflation and often moves in the opposite direction of the dollar.
"The market is looking good," one trader said, adding that one participant in particular was using the price strength to offload some sizeable offers and this was keeping the market under wraps.
"But on the whole I think we'll go higher and dips will be bought." The metal's recent failures to re-test $700, a level last seen in May 2006, have disappointed investors but bargain hunters and jewellers would be happy to buy at lower levels, dealers said.
In other precious metals, platinum slipped to $1,290/1,294 an ounce from $1,291/1,295 an ounce in the US market. The metal gained this week on the back of supply concerns after Angloplat, the world's biggest platinum producer, said on Monday it would close its biggest mine for up to seven days due to safety concerns. Silver fell to $13.24/13.28 an ounce from $13.31/13.35, while palladium was up $4 at $371/375.