Gold bounced back to trade above $800 on Tuesday after hitting a one-week low in Asian trade, as bargain-hunters resurfaced and a weaker dollar helped the metal.
But analysts said the metal remained vulnerable to further corrections because of a decline in oil prices and profit-taking from last week's rally that saw the metal hitting a 28-year high of $845.40 and hovering near its record peak of $850.
Gold hit a low of $790.80, it's lowest since November 2, before rising to $808.70. It was at $804.35/805.05 an ounce by 1013 GMT, against $803.10/803.90 late in New York on Monday, when the metal fell more than 3.5 percent.
"Given that speculative positions have reached yet another record high, the market is likely to see a liquidation. It could correct a bit further lower to $786," said Suki Cooper, analyst at Barclays Capital.
"But we still maintain our positive outlook on the oil market, the dollar will remain quite weak and there are inflationary concerns. $850 is still obtainable as the overriding drivers for gold remain very positive," she said.
Gold posted its biggest percentage loss since October 2006 on Monday, after investors liquidated positions on sliding oil and a wave of risk aversion, which hit equity and foreign exchange markets.
Oil fell more than $1 a barrel after the International Energy Agency cut its forecast for world oil demand growth, saying that the recent surge in oil had hurt consumption. Gold is generally seen as a hedge against oil-led inflation and often moves in the opposite direction of the dollar. The dollar fell to move closer to a recent record low against the euro.
"The market was pushed lower by profit-taking and stop-loss selling and that flow of business has slowed down," said David Holmes, director of precious metals sales at Dresdner Kleinwort. "Gold is consolidating here. It would be very encouraging if we could hold here and rebuild," he added. Rising energy costs helped gold's recent rally, in addition to expectations the US Federal Reserve will cut interest rates by another quarter percentage point at its meeting in December.
In other bullion markets, the key gold futures contract for October 2008 delivery on the Tokyo Commodity Exchange fell to its lowest in almost 3 weeks at 2,815 yen per gram before ending at 2,887 yen, down 36 yen from Monday's close.
The most-active December gold contract on the US exchange fell $3.0 an ounce to $804.60. "There seems to be bargain hunters at below $800. Some dealers were caught short at around $800 and pushed up the market again," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
Platinum rose more than 2 percent to $1,415/1,420 an ounce from $1,386/1,390 in New York on Monday, when it touched a one-month low of $1,385. "The Johnson Matthey (JM) price projection is fairly neutral. The market is little bit up post JM report, but platinum was sold aggressively and it's a level where people are comfortable dipping back into the market," Holmes said.
The world platinum market would end 2007 in a big deficit, with the metal seen hitting a record high of $1,575 in six months on strong fundamentals and buoyant gold prices, said Johnson Matthey, the world's top platinum refiner and fabricator.
The market deficit was seen at 265,000 ounces this year. It had a surplus of 65,000 ounces in 2006 following seven successive years of deficits, it said in the report on Tuesday. Silver edged up to $14.77/14.82 an ounce from $14.55/14.60, while palladium was at $369/373, up $5.