Recovery underpinned by stronger euro, Bank of Japan announcement on monetary easing
Gold bounced from a near two-week trough on Friday, underpinned by a stronger euro ahead of the ECB loan repayments statement and the reaffirmation of Bank of Japan's commitment to aggressive monetary easing.
The euro hit an 11-month high versus the dollar as markets awaited to know how much banks will repay of the one trillion euros in European Central Bank crisis funds that have been keeping them afloat.
A weaker dollar is often seen by other currency holders as an opportunity to buy slightly cheaper gold.
Spot gold was up 0.1 percent at $1,669.20 an ounce at 2.42pm UAE time, rebounding from a lowest since January 14 at $1,663.11 hit earlier after finding technical support at its 200-day moving average of $1,662.40.
The metal was still heading for a weekly decline of nearly 1 percent, its sharpest one-week loss in about a month.
"We are seeing some dollar weakness and there has been some pent-up buying," SP Angel analyst John Meyer said.
"We are still in a rangebound market at the moment... but gold will be underpinned by ongoing accomodative central bank activity and it's quite possible that it will find itself moving into more central banks' portfolios," he added.
The Bank of Japan Governor Masaaki Shirakawa reaffirmed the bank's pledge to maintain its ultra-loose policy and more drastic easing policies may follow during the year.
Monetary stimulus has been a key driver of gold's rally in recent years, as ultra-low interest rates and heightened inflation concerns send investors to bullion.
The next market-moving event on the calendar is expected to be a US Federal Reserve statement on Wednesday, which will give more clues on their monetary policy, analysts said.
"There is still much uncertainty ahead and many hurdles to clear before one can claim that U.S. economic growth is trudging along a robust, sustainable path," UBS analyst Joni teves said a note.
"Accommodative policy is still expected to remain in place for some time, a scenario that continues to be conducive for higher gold prices," she added. "And in that sense, the recent pullback should be viewed as an opportunity to pick up metal at more attractive levels."
US gold futures for February delivery were down $1.40 an ounce at $1,668.50.
The price slump of the past few days has triggered some physical buying interest, analysts said.
"We can now see some restocking ahead of the Chinese new year and possibly some restocking in the inventory chain in anticipation of a better economic environment through the first half," Meyer said.
Spot silver was up 0.2 percent to $31.71 an ounce, after hitting a one-week low of $31.47 in earlier trade.
Spot platinum inched up 0.3 percent to $1,683, on course for a 1 percent weekly gain, extending its winning streak to a fourth week, its longest in a year. Spot palladium was unchanged at $724 an ounce.
Hopes that global demand for the platinum group metals from the automotive sectors will increase in line with an economic recovery keep the metals underpin.
Moreover, a move to diesel cars from gasoline engines in the United States is seen as a potential source of buying for platinum in the long term, analysts said. Platinum is used in diesel engines to clean up exhaust emissions.
"In the United States, the switch from gasoline to diesel is at a much earlier stage... around 5 percent of newly sold passenger cars in the United States run on diesel, up from just 1.7 percent in 2008," Natixis said in a note.
"This suggests a structural shift which should progressively increase demand for platinum in the coming years as the United States embraces ultra-low sulphur diesel amid tightening fuel efficiency requirements which should push drivers and automobile manufacturers towards diesel-powered vehicles," it added.