Gold bounced on Friday after a drop to a 1-week low the previous day attracted bargain hunters, although thin trade ahead of the Christmas break and a volatile euro could push prices in either direction. Tensions in the Korean peninsula could underpin sentiment after North Korea threatened a nuclear "sacred war" and South Korea vowed a "merciless counterattack" if it was attacked again.
Spot gold rose $1.61 an ounce to $1,381.50 an ounce by 0237 GMT, having dropped to as low as $1,372.05 an ounce on Thursday as the euro rebounded. Gold was well below a historical high of around $1,430 hit earlier this month. "We've seen more talk of potential conflict in Korea we'd expect it will underpin gold for the moment," said Darren Heathcote, head of trading at Investec Australia in Sydney.
"It's certainly looking a little bit stronger from where it was earlier. But the market is extremely thin." South Korea's land and sea exercises have prompted North Korea, which has threatened to reduce the South to ashes on many occasions, to denounce its richer neighbour as a warmonger.
There was hardly any trade in the physical market, with jewellers in Singapore, Hong Kong and Indonesia already shut for the Christmas break. In top consumer India, buyers waited for a price correction as the year wound down. India's religious festivals, which boosted demand for gold, ended last month and the wedding season ended this month. But dealers have to buy to prepare for the next buying rush that starts after the harvest festival mid-January, following which weddings also take place.
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