LONDON -- Gold ended higher in New York afternoon trade Friday, bouncing back from the nine-week low set on Thursday, and analysts said the metal might recover on bargain hunting and physical buying.
But larger-than-usual gold sales by European central banks in the past weeks might weigh on prices, they said.
"At some stage, we would expect the downside to fade a little bit, giving some room for an upside swing. You start to feel now that there is some hesitation in the selling," said Frederic Panizzutti, precious metals analyst at MKS Finance.
"We would expect gold to bounce back from around these levels. The dollar remains a key factor," he said, adding physical buying was likely to be good.
Gold was quoted at $655.35/655.85 an ounce by 3:02 p.m. EDT, against $653.20/653.70 in New York late Thursday, when it fell as low as $651.30.
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Most-active gold for June delivery on the COMEX division of the New York Mercantile Exchange settled up $2.00 at $655.30 an ounce, trading between $653.30 and $656.90.
"The fact that the speculative community is still holding relatively large long positions in gold adds an additional layer of downside risk if U.S. dollar strength continues," Deutsche Bank said in a research note. "We are maintaining our core bullish view on gold based on U.S. dollar strength fading and new record lows being hit during 2007."
CENBANK GOLD SALES
"Investment funds are flowing out from gold, base metals and from other commodities because of the dollar's strength against the euro," said Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo.
"At the moment, the trend of the dollar is the key to gold. But gold could be put under bigger selling pressure if the euro drops below $1.34," Emori said.
Traders said gold sales by European central banks under a five-year pact that started in late 2004 had dampened sentiment.
On Tuesday, the European Central Bank said it sold 280 million euros of gold and gold receivables. Some analysts said the bank had accelerated sales recently to catch up with its slower sales pace early this year.
In May, the Bank of Spain sold 1.3 million ounces of gold from its reserves, after it sold another 1.3 million ounces in March. In April, the Bank of France disclosed that it had sold 105 tonnes of gold in 2006.
In other metals, platinum fell to a five-week low of $1,267 an ounce, versus $1,280/1,285 late in New York the previous day, while palladium was down $1 to $364/368 from its previous finish in the U.S. market.
Europe-based ETF Securities said that it had no plans to list its new platinum fund, the world's first, in the U.S. market and said another firm has dropped the idea of launching a similar product in the United States.
Silver rose 13 cents to $12.95/12.98 in New York compared with its last quote on Thursday in New York.
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