LONDON Gold bounced from a one-week low on Friday after this week's climb to a record above $900 an ounce, but the market could consolidate before charging higher, fund managers and analysts said.
All eyes were on a U.S. Federal Reserve meeting on interest rates Jan. 29-30 after Chairman Ben Bernanke told a congressional committee more rate cuts might be required as the economic outlook worsened.
Spot gold hit an intraday low of just over $870 an ounce before rebounding to $879.90/880.60 at 1547 GMT, marginally up from $876.70/877.40 in New York, on bargain hunting. Gold dropped around 1 percent on Thursday on chart-based selling and falling oil.
"Gold is consolidating after touching recent highs," said Christoph Eibl, head of trading at Tiberius Asset Management, noting that there had been some investor selling of gold held in exchange-traded funds (ETFs).
"ETF investors ... are holders rather than traders, therefore the recent drop has some strength," he said.
The amount of gold held in New York-listed StreetTRACKS Gold Shares, the world's largest gold-backed ETF, hit a record on Jan. 15 but has since fallen by around 20 tonnes to 629.83 tonnes.
Gold, which roared to a record high of $914 an ounce on Monday, is expected to trade in a range of $870 to $900 an ounce, with movements in the currency, energy and stock markets likely to provide direction.
Gold's drop from the record high was partly driven by selling from investors and funds to cover margin calls from losses in stock markets amid fears of a recession in the United States.
Gold's investment appeal was intact owing to flight-to-quality demand on the back of turmoil in financial markets as a result of a mortgage-related crisis and worries
about higher inflation.
"External factors such as higher inflation expectations, broader economic concerns, geopolitical tensions and Fed rate easing are likely to drive prices higher," Barclays Capital said in a report.
"On a fundamental basis mine supply remains constrained and physical and investment demand should emerge upon price dips providing a price floor," it said.
The dollar gained against the euro and the yen on Friday, supported by high share prices and a higher than expected showing in the Reuters/University of Michigan survey of consumer sentiment.
Bernanke said he will support efforts to craft a fiscal stimulus package and repeated the U.S. central bank was ready to act aggressively to counter recession risks.
Platinum ticked up to $1,556.50/1561.50 from $1,555/1,560 an ounce in New York. Palladium dropped to $366/371 an ounce from $367/372.
Silver edged up to $16.11/16.16 an ounce from $15.87/15.92 an ounce.
"For 2008 we envisage the market remaining in substantial surplus, with supply exceeding demand by 7,315 tonnes; metal available to the investor which in a strong market as we have recently experienced, appears to be relatively easy to absorb," analysts VM Group said in a report.
(Additional reporting by Lewa Pardomuan in Singapore)