Gold surged to a four-month high on Thursday, boosted by good physical demand, technical buying and firm energy prices, analysts said. But dealers remained cautious in chasing prices too actively above key chart levels and ahead of the release of closely watched US non-farm payrolls data on Friday.
Gold climbed as far as $689.90 an ounce, the highest since early May, and was quoted at $687.80/688.60 by 1417 GMT, against $681.40/682.00 in New York late on Wednesday. A rise beyond $693.60 will place gold at a 16-month high.
"The fundamentals are good. There are expectations of increasing physical demand, particularly out of India for the wedding season, and also demand from jewellers and watchmakers in Europe," said Robin Bhar, analyst at UBS Investment bank.
"The charts are looking quite bullish as you have technical signals on the buy side. In the options market, you have got big call options positions open around the $700 level for September. So you see some covering by market-makers against that."
Oil rose $1 a barrel, closing in on an all-time high of $78.77, as investors expected US refinery snags and slower imports to drain gasoline and crude stocks in the world's biggest consumer.
Investors watched the euro, which initially fell against the dollar after European Central Bank President Jean-Claude Trichet said recent market volatility had led to uncertainty. But the dollar later fell against the euro, making gold cheaper for holders of other currencies.
"Gold prices continue to be heavily influenced by investor sentiment and movements in foreign exchange rates," said Michael Widmer, director of metals research at Calyon Corporate and Investment bank.
It has rebounded more than 7 percent since falling to a seven-week low of $641.10 in mid-August, when investors sold gold and other metals for cash to cover margin calls on losses arising from a meltdown in the US subprime mortgage market.
Gold traditionally has been used by investors as protection against economic and political uncertainty. But in recent months it behaved much like other financial assets because of the growing role of commodities in diversified portfolios.
"The metal has sprung into action this morning as the good demand seen in Asia has spilled over into early European trade," said James Moore, precious metals analyst at TheBullionDesk.com.
"Gold does seem to have found some momentum of its own this week, suggesting the metal's safe-haven attributes have well and truly kicked in," he said. "Gold should be supported as there is plenty of seasonal demand. Many Asian buyers such as from India are showing strong interest," said Akira Doi, director at Daiichi Commodities Co Ltd in Tokyo.
In other metals, silver was catching up with gold's gains, rebounding 11 percent since last month's sharp drop as purchases from jewellers and bargain hunters resurfaced.
Silver rose to as high as $12.35, matching Tuesday's two week high, before easing to $12.30/12.33 an ounce, versus $12.19/12.22. Palladium advanced to $332.15/336.15 an ounce from $329.50/333.50 in New York. Platinum hit one-month high of $1,284 before falling to $1,276.60/1,283.60 an ounce, against $1,269.50/1,276.50.
"The main factor for the platinum price is still concern about a shortfall this year, caused in part by the buoyant demand for cars expected. We therefore envisage moderate gains over the next few months," Commerzbank said in a daily note.