Gold held steady on Friday after falling to a one-week low the previous day, while bullion contracts in Tokyo extended losses as cautious investors digested a plan by the Japanese exchange to boost liquidity.
Spot gold was at $651.10/652.60 an ounce, little changed from $651.30/652.80 late in New York on Thursday, when it dropped to an intraday low of $647.50 an ounce as a firm dollar reduced its appeal as an alternative investment.
But gold was likely to find solid support at $650 from now on, which would encourage investors to buy again, said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo.
Some private investors and jewelry makers will enter the market at this level. $650 is the bottom price, said Sonoda, adding that Tokyo futures were still struggling to attract investors.
Trading range was tight for gold, which saw an opening bid of $651.10 and an intraday high of $652.00 -- still below a near two-week high of $661.40 hit on Tuesday.
There's not much doing on the physical side, not much business. There may be a wider range in New York, said Leon Lee, a dealing officer at the Bank of China in Hong Kong.
Key April 2008 gold futures on TOCOM hit a one-week low of 2,617 yen per gram but a weaker yen helped cushion the fall. The contract ended down 7 yen at 2,624 yen.
The Tokyo exchange said on Wednesday it was scheduled to launch gold mini-futures trading on July 9 to boost liquidity by lowering the size of the contract to 100 grams, or one-tenth the size of the standard gold futures contract of 1 kilogram.
This would enable investors to trade gold at a lower cost and with lower margins.
Tatsuo Kageyama, an analyst at Kanetsu Asset Management, was less optimistic on gold's outlook.
Domestic prices are being supported by the yen's weakness, but generally gold is under strong downward pressure due to a rise in U.S. Treasury yields and the strength of the dollar, he said.
Oil prices are strong but the market is now more sensitive to reacting to bearish news. Bullish stock prices are also negative for gold, said Kageyama, referring to recent gains in Asian stock markets.
Tokyo's most active contract has dropped as much as 1.2 percent since rallying to a two-week high of 2,649 yen on Wednesday and is trading well below a 21-year high of 2,702 yen hit in late February.
The yen slipped to a 4-1/2-year low against the dollar after Japanese investors ditched their low-yielding currency for foreign assets and market players kept using the unit to fund carry trades.
The dollar held broad gains made after the highest reading of growth on a regional U.S. economic indicator since April 2005.
The dollar rose to 123.90 yen on electronic trading platform EBS, holding near a session high of 123.97 yen that was the highest since December 2002.
The euro was little changed at $1.3395 on EBS after dipping to $1.3372 the previous session.
Silver edged up to $13.09/13.13 an ounce from $13.08/13.12 late in New York.
Platinum fell to $1,287/1,292 an ounce from $1,288/1,292 an ounce late in New York.
The most active contract in TOCOM platinum futures currently April 2008, also fell 7 yen per gram to 5,082 yen, having hit record highs twice this week.
Despite the declines, dealers were upbeat on platinum.
Fundamentals for platinum are bullish because of concerns over the possibility of a labor strike at mines in South Africa, Kageyama said. Traders don't want to go short now given such sentiment.
Key TOCOM platinum is stuck in a range of 5,000-5,100 yen, but active stop-loss short-covering could emerge if it breaks through 5,100 yen.
Palladium dipped to $373/377 an ounce from $374/377 an ounce.