Gold eased below $990 an ounce on Friday after a two-day rally that took the market to within a whisker of $1,000, as an uptick in the dollar index after U.S. non-farm payrolls data prompted some traders to cash in gains.
But prices remain well-supported near Thursday's close by risk aversion on the one hand and inflation fears on the other, and could be poised for further gains, analysts say.
The precious metal rallied to a six month high of $997.20 an ounce late on Thursday after a slide in stock markets earlier in the week pushed the metal through key technical resistance levels, triggering 'buy' orders.
Spot gold was bid at $986.80 an ounce at 1308 GMT (9:08 a.m. EDT), compared with $990.10 late in New York on Thursday. Prices remain within sight of the $1,030.80 high hit in March 2008.
Gold is holding its own, said Calyon analyst Robin Bhar. The data is not bullish or bearish for gold, it is probably neutral. But we have had a good run, we have gained $40 in three days, so people are taking some money off the table.
Silver also held above $16 an ounce after hitting its firmest level since August 2008 on Thursday at $16.26, boosted by gains in gold.
Gold is benefiting from uncertainty over the strength of the economic recovery, with investors who see the recovery faltering buying the metal as a haven from risk, while those who believe it is sustainable choose the metal as an inflation hedge.
FUNDS PICK UP
Buying of gold exchange-traded funds picked up, with holdings of the largest, New York's SPDR Gold Trust, posting the biggest one-day percentage rise since March.
That buying underscored a fresh burst of investor interest from those seeking a refuge from faltering confidence on a broader global economic recovery. Traders said the core of that concern sprang from share prices after Shanghai stocks hit three-month lows this week.
It seems there is a flight back to safe-haven assets, said Simon Weeks, head of precious metal sales at Scotia Mocatta in London, adding that a technical break through $962 and $976 had provided powerful momentum to prices.
Traders are closely eyeing moves in the dollar to give fresh direction to prices. The dollar index <.DXY> firmed a touch on smaller-than-expected U.S. job losses, which showed employers cut 216,000 non-farm jobs in August.
Meanwhile U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange fell $8.70 to $989.00 an ounce.
Among other precious metals, silver prices eased a touch after hitting a 13-month high late on Thursday. Silver was at $15.99 an ounce against $16.08.
The world's largest silver-backed ETF, the iShares Silver Trust, also said its holdings rose 61.18 tonnes on Thursday to 8,726.2 tonnes.
Elsewhere platinum was at $1,242 an ounce against $1,249.50, while palladium was at $286.50 against $289.
(Editing by Keiron Henderson)