Gold drifted higher on Thursday on bargain hunting after a three-month low the previous day, but analysts said the metal had potential to test fresh lows.
Spot gold rose as high as $651.70 an ounce before easing on comments by the Swiss National Bank that it would sell 250 tonnes of gold over the next two years.
The metal was quoted at $650.10/$651.60 an ounce at 1004 GMT, up from $647.20/$650.70 in New York late on Wednesday.
A lot of the short-term money has been taken off the table. A lot of funds have got out, but long-term holders are still there, said Jeremy East, head of metals trading at Standard Chartered Bank.
What may happen is that if it breaks that level, then the more short-term traders will be looking to get short. We are still not out of the danger zone, but we are having a bit of respite, he said, referring to gold's 200-day moving average of $638.59.
The market kept a watch on the dollar, which edged up against the euro and hit a 4-1/2-year peak against the yen, extending gains after strong U.S. retail sales data the day before reinforced expectations the Federal Reserve would not cut interest rates this year.
A surge in U.S. Treasury yields to five-year highs this week on an upbeat economy outlook has stoked demand for the dollar.
Investors also awaited May producer price data from the United States, but the big figures of the week are U.S. consumer price data on Friday.
With its recent drop, the metal has now broken an important technical support line that had been in place since September 2005, said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at Germany's Heraeus.
Should that surprise breach be confirmed in the next days, a wave of selling could be the result, leading potentially to a test of the March low at $635, and in the worst case even of the year's low, which was reached in early January at $608.
CENTRAL BANK SALES
Traders said continued gold sales by central banks was bearish for the market.
The Swiss National Bank said it would use the money from gold sales to increase its foreign exchange reserves. The sales, the first since 2005 by the world's sixth-largest gold holder, would be carried out in stages to avoid unsettling markets.
It said the plan was in line with an agreement among 15 European central banks to limit gold sales to 500 tonnes a year as it would take over sales quotas unused by other central banks. Germany's Bundesbank, for example, has limited its gold sales to the amount needed for minting coins.
It's mildly bearish for the gold market, but even with this the central banks would probably struggle to sell the full amount of the quota, East said.
Silver was down 3 cents to $13.04/13.08 an ounce, while palladium rose to $368/$371 from $362/$367. Spot platinum was up at $1,280/$1,285, versus $1,278/$1,283.
In industry news, South Africa's National Union of Mineworkers (NUM) declared a dispute with Impala Platinum over its reluctance to put an offer on the negotiating table.