Gold bounced in European trade on Wednesday after earlier touching an 11-week low in choppy trade, but near-term pressure from weaker oil prices and technical selling would persist, analysts said.
"At the moment the short-term proposition is to sell the rallies rather than buy the dips," David Gornall, head of forex and bullion at Natexis Commodity Markets, said.
"The move lower was been sparked by oil, compounded technical selling, but going forward the market hasn't quite broken down. I don't think we will see the end of the bull cycle until gold breaks convincing below $540."
Spot gold fell as low as $578.60 an ounce before rising to $587.70/589.20 by 1443 GMT, compared with $587.80/589.30 an ounce late in New York on Tuesday.
Gold has fallen nearly 10 percent in a week from its high of $640.25 an ounce because of heavy selling by funds, triggered by falling oil prices and firmer dollar.
Oil was trading just below $64 a barrel, after eight days of price falls which have sent crude to its lowest in almost six months after Iran sounded a softer note on its nuclear plan, Opec agreed to keep supplies steady and BP raised hope for a quicker resumption of Alaskan supplies.
"With the break that we have seen, things are fairly gloomy. Given that we started September on such a positive footing, it's very disappointing to see gold trading at these price levels," said David Holmes, director of precious metals sales at Dresdner Kleinwort. "With the weakening of the oil price and base metals prices, a lot of the euphoria that was in the market is evaporating. I think we could still be in a correction phase."
"As long as gold remains below $597-$600 area, it's looking more likely that it will want to head down and test $575, and possibly after that the $550 level," said Darren Heathcote of Investec Australia in Sydney. "I can only imagine that as a result of this move, a lot of investors have become very nervous and they are very happy to take a defensive stance and stay in cash," he said.
In other precious metals, silver was at $11.07/11.14 an ounce after falling as low as $10.87, versus $10.98/11.05 late in New York on Tuesday. Platinum fell to $1,175 an ounce before bouncing higher to $1,185/1,190, versus $1,200/1,205 in the US market. Palladium was at $310/314 from $318/322. "Platinum is trying to recover, but it keeps falling away. Fundamentally platinum and palladium look good and we should finish the year positively," Gornall of Natexis said.
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