Gold fell slightly on Monday but held near 10-week highs as the precious metals market took a breather from last week's rally, but a weakened dollar and more bullish sentiment limited losses.
Bullion's recent rise prompted investors to increase holdings in StreetTRACKS Gold Shares, the world's largest gold exchange-traded funds (ETF) by far, to a near-record level.
There is good-sized buying out there with the current market price. We are also seeing the buyers move up their targets a little bit. I think the market will be supported underneath here, said Paul McLeod, vice president of precious metals at Commerzbank in New York.
Gold was quoted at $680.90/681.70 an ounce at 3:23 p.m. EDT (1923 GMT), compared with $682.90/$683.70 late in New York on Friday, when it touched $686, the highest since May 9 and a gain of more than $20 since last Monday.
Most-active gold for August delivery on the COMEX division of the New York Mercantile Exchange settled down $3.20 at $681.50 an ounce, dealing between $680.50 and $685.80.
All the indicators look positive, the weaker dollar against the euro and steady oil, said Robin Bhar, analyst at UBS.
Gold is likely to stay well supported, but we have come a long way, a period of consolidation would be good, though any correction is likely to be short lived.
A weaker U.S. currency makes dollar-denominated metals more attractive to investors in other currencies.
Gold is again in demand as funds are buying again and gold ETFs record inflows ... However, without a major economic data release, a consolidation after the strong rise last week cannot be ruled out, Dresdner Kleinwort said in a research note.
But the bias remains clearly to the upside as continued speculation on the fallout of the U.S. sub-prime mortgage crisis could move the markets.
Rising prices prompted investors to increase their holdings in U.S.-listed StreetTRACKS. Holdings rose to 497.15 tonnes last week, against 473.45 tonnes on July 6 and just shy of a record high of 500.72 tonnes in April.
Much of the price gain last week was due to speculators buying back gold they had sold on expectations of lower prices.
Data from the U.S. Commodity Futures Trading Commission showed higher net long gold positions.
Silver's gains too persuaded investors last week to plough more money into a Barclays iShares Silver Trust (SLV.A: Quote, Profile, Research), the world's biggest silver ETF, which added 1.5 million ounces.
Traders expect to see further gains for silver as investors and speculators increase their holdings.
Changes in gold and silver ETF holdings are closely watched by market participants because sharp inflows in gold ETFs could be a bullish signal as it shows longer-term retail investors are entering the market.
In industry news, price volatility of gold declined in the second quarter, as a weakening dollar boosted bullion's average price 3 percent to about $667 per ounce, the World Gold Council said in a report on Monday.
Silver was lower at $13.23/13.28, compared with $13.27/13.31 in New York late Friday, when it hit a high of $13.40 an ounce, the highest since June 8.
Palladium was a touch softer at $369/372 an ounce from its previous close of $370/374 and platinum was lower at $1,328/1,332 from $1,330/$1,334 quoted late on Friday in the U.S. market.
Earlier platinum hit $1,335, matching the high on May 14.
Analysts said the platinum market was watching wage negotiations in South Africa at the world's biggest platinum producer, Angloplat, which could lead to a wage deal and avert a strike.
(But) the white metal is very near to May's $1,340 high and there is very little resistance between that figure and the metals all-time high of $1395, a London-based trader said.
(Additional reporting by Atul Prakash in London)