Gold slipped to a one-week low on Thursday as investors took profits from its 11-week highs, but analysts said firmer oil prices and weaker dollar outlook might support the metal. Spot gold rose as high as $676.60 an ounce before falling to $666.40.
It was quoted at $670.25/670.85 by 1431 GMT, against $674.40/675.20 late in New York on Wednesday when it dropped about 1.5 percent. "I'm still bullish on the market despite the actions from yesterday. We expect to see some consolidation at these levels and should gold hold at current levels, I expect that we will push higher," said a precious metals analyst in London.
"We're not going to see one clear upward trend. We push higher, fall back, consolidate for a while, and push higher once again," she said, adding a lot of long trading position holders had left the US futures market which should support gold.
Dealers kept an eye on the dollar as it steadied against the euro, holding on to gains made the previous day during a sharp technical rebound from 15-year troughs against a basket of major currencies and this week's record low versus the euro.
The greenback has suffered in recent weeks as investors fret that troubles in the US subprime mortgage market - catering to borrowers with a poor credit history - could spill over into slower economic growth and lead to interest rate cuts.
A weaker dollar makes gold cheaper for other currency holders and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
US crude oil surged more than $1 to $77 a barrel, its highest level in almost a year, on increasing demand from refiners in the world's top consumer. "Direction in the coming session will largely depend on the dollar with tomorrow's GDP reading potentially proving pivotal," James Moore, precious metals analyst at TheBullionDesk.com, said in a daily research note.
Analysts said the market also came under pressure on market talk that European central banks might be selling more of their gold in the remaining months of the third year of a five-year agreement, which limits gold sales to 500 tonnes a year.
The banks sold about 18 tonnes of gold last week, taking the total to about 340 tonnes during the current year of the Central Bank Gold Agreement, they said. The year ends in late September.
"However, we do not envisage this year's sales quota of 500 tonnes being met, so the latest sales will probably only dent the price briefly," Commerzbank said in a note.
In other metals, spot platinum fell to a one-week low of $1,311 an ounce and was last quoted at $1,314/1,318, down from $1,318/1,322 in New York. Calyon Corporate and Investment Bank said the platinum market had been extremely tight during the past few years. Given high prices, producers had raised capacity at existing operations or brought new sites online.
"However, so far this year, many producers have been hit by a variety of production issues. We therefore expect the platinum market to remain tight for yet another year," it said. Silver fell to a two-week low of $12.81 an ounce before rising to $12.99/13.03, against $13.08/13.13 in the US market. Palladium was down 50 cents at $363.50/366.50.