Gold inched up on Friday on bargain hunting after hitting a two-month low earlier in the week when economic uncertainty prompted investors to seek a safe haven in the US dollar and US Treasuries, and easing inflation worries hurt gold's appeal as an inflation hedge.
Despite the bounce, however, traders said gold remained in a near-term technical downtrend and were eyeing whether physical demand would provide support near this week's low.
"If we look at gold's movements on a one-week or a slightly longer one-two month basis, we are still in a downward movement, and this trend should hold unless gold moves above the $US920-$US930 region," said Adrian Koh, an analyst at Phillip Futures in Singapore, who was looking at gold candlestick charts.
The gold market is still taking its cues from the dollar, but the inverse relationship appears to be weakening, he said.
"The dollar lost quite a bit of ground yesterday, but gold was up but by a lesser amount," he said.
Spot gold rose as much as 0.3 per cent to $US914.60, compared with New York's notional close of $US911.45. Its high on Thursday was $US918.30, despite the US dollar falling 0.7 per cent against a basket of major currencies that day.
At current levels, spot gold is set for a drop of about 2 per cent on the week, its biggest weekly loss in a month.
US gold futures for August delivery eased 0.3 per cent to US$913.4 from $US916.20 an ounce on the COMEX division of the New York Mercantile Exchange.
Gold fell to a two-month low of $US904.70 on Wednesday. Liquidation of long positions by fund managers had accelerated the decline after gold broke below technical support at $US915, traders said.
Traders were eyeing a key support level of $US870-$US880, where the market spent some time after hitting the year's low of $US864 in mid-April and resuming its rebound towards $US1000.
Investment in gold has remained sluggish, with holdings at the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, steady at 1109.81 tonnes as of July 9.
