Gold drifted higher on Friday on a weaker dollar and firmer oil and dealers said physical buying might help the metal move further away from three-month lows. Spot gold was quoted at $650.90/651.90 an ounce at 1348 GMT, against $647.90/$649.40 in New York late on Thursday and a three-month low of $638.90 on Wednesday.
"The dollar is slightly off this morning and that's helping gold prices to some extent," said Michael Widmer, director of metals research at Calyon Corporate and Investment Bank.
"Prices below $650 will definitely attract physical buyers and underpin the market, but I see range-bound trade in the coming weeks." Analysts said investor confidence - battered in recent days by the trouble in credit markets - seemed to be on a firmer footing and the gold market was turning its attention back to traditional drivers such as oil and the dollar.
"The precious metals markets bounced on a combination of easing in credit market concerns, which encouraged bullion buying, and a rally in oil and other commodities," HSBC Bank said in a daily research note. The dollar struggled to gain against major currencies as investor risk appetite returned. Traders also took the view that recent data showing an easing of inflation and signs of weakness in growth and housing market indicators would discourage the US Federal Reserve from raising rates. The Fed left key interest rates on hold at 5.25 percent on Thursday as expected, making it a year since rates have been stuck at that level.
A weaker US currency makes dollar-denominated metals cheaper for investors in other currencies. Gold is often seen as a hedge against oil-led inflation. Oil rose above $71 a barrel as the market focused on falling inventories in the United States and a decline in crude stocks in a key delivery point in the world's top consumer.
"For the moment it seems gold has returned to its normal values of being a safe-haven and hedge against inflation. For the moment sub-$650 should be viewed as a good buying opportunity by physical players as well as investors," said James Moore, analyst at TheBullionDesk.com.
In other metals, silver rose to $12.48/12.53 an ounce from $12.41/12.46 in New York, while palladium was at $365/369 an ounce, compared with $363/367. Platinum was up 50 cents at $1,272.52/1,276.50 and remained underpinned by wage negotiations in South Africa, the world's largest producer of the metal.
"In the coming days we expect the metal to trade sideways, but the $1,260 mark has to hold in order to keep a half-way positive momentum," said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Germany's Heraeus. "If the level gives way, perhaps on the back of a peaceful settlement of the labour dispute in South Africa, a quick test of the May low at $1,250 seems inevitable."
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