Gold rebounded on Wednesday to trade in a tight range after a sharp drop in prices to two-month lows in the previous session encouraged bargain hunters and investors to snap up the metal.
But analysts said the broad commodities sell-off in recent days had damaged near-term sentiment and bullion investors would be cautious in chasing the metal higher ahead of US payrolls data on Friday that could influence the dollar.
"We are trying to recover some ground and may succeed depending on the data releases in the US, but that could be temporary respite," said Tom Kendall, metals strategist at Mitsubishi Corporation.
"It's too early to be wholly convinced that the time is right to go long again for strategic investors. The market needs to steady for a while and it's possible that we will set up a range here between $875 to $900 for a week or two." Gold hit a high of $894 and was at $888.20/889.10 at 1440 GMT, against $884.20/885.40 in New York late on Tuesday, when it fell as low as $872.90.
A decline of 3 percent on Tuesday took overall losses to 15 percent since gold hit a record high of $1,030.80 last month, making bullion attractive for physical dealers. "Looking ahead, Friday's US non-farm payroll data is set to be an important indicator of the state of the US economy," Standard Bank said in a report.
"A figure much higher than expected could see the dollar extending its recent gains against the euro. However, if it appears that the US is still struggling to create jobs, it could lead to renewed dollar weakness on the back of expectations of further aggressive Fed rate cuts."
The dollar rose against the euro after a report showed US private employers unexpectedly added to payrolls in March, stoking some optimism about the health of the US economy.
The dollar was also bolstered by a report that eurozone leaders would probably raise concerns about what they see as the excessive strength of their currency at a Group of Seven meeting on April 11, according to EU sources. Gold often moves in the opposite direction of the dollar.
Analysts were positive about gold's outlook. "Gold is looking decent here. I'm not convinced the worst is over for either the credit market crisis or the US economic slowdown," said David Thurtell, metals analyst at BNP Paribas. "US jobs data will be crucial for the market. Poor numbers would see renewed US dollar weakness and gold may push back over $920," he said.
In other precious metals markets, US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $0.8 an ounce to $888.60. Spot platinum rose 1.6 percent to a high of $1,948 an ounce before falling to $1,928/1,938, still up from $1,918/1,928 on Tuesday, when it fell to a low of $1,888.
Platinum has fallen more than 15 percent since hitting a record high of $2,290 on March 4 on production problems in South Africa, the world's top producer of the metal, following an electricity supply crisis. State power utility Eskom said on Wednesday that South Africa's power crisis may last many years unless there was a sustained drop in electricity demand in the country.
The warning came as Eskom, which produces about 95 percent of the nation's electricity, resumed a wave of planned power cuts and South Africans grew increasingly impatient with an energy crunch that has shaken industry and investor confidence.
Silver inched higher to $16.87/16.92 an ounce from $16.81/16.86 on Tuesday, when it hit a two-month low of $16.32, while palladium was flat at $435/450 an ounce.