The spot price of gold on Friday afternoon was higher in thin, volatile trade with thoughts about US interest rates continuing to drive the currency markets and in turn gold, traders said.

By late afternoon, gold was quoted at $637 a troy ounce, up $3.49/oz from the previous close. The euro was last quoted at $1.2738, up $0.040 from the unit's late trade on Thursday.

"Gold is up, down and round about. The market is interest rate driven. When the market thinks that the Fed is going to increase interest rates then the US dollar strengthens and the gold price falls, when the market becomes concerned that that the Fed is not going to hike rates then the dollar slops and gold goes up," a London-based trader said.

Range bound for now

Barring any sudden and unexpected weakening of the US dollar, UBS does not see any short-term catalyst to break gold and the other precious metals out of the current ranges, London-based UBS analysts John Reade wrote.

"While we see higher metal prices in the fourth quarter and into 2007, the balance of the Northern Hemisphere summer may see light, whippy trading," Reade added.

The gold market has established a clear range over the last few weeks between $600/oz to $675/oz and this range was likely to hold in the coming month, Absa/Barclays technical analysts wrote.

Gold prices retreated from the highs on the Tokyo Commodity Exchange and in London after the failure to break through the technical resistance level of $640/oz dampened market sentiment and sparked some profit taking ahead of the weekend, Absa/Barclays commodity analysts wrote.

Gold 'wary'

"Market participants were also cautious in the wake of the volatility seen in the EUR/USD this week," the bank added.

There was also continued uncertainty over the extent and the pace of US Federal Reserve tightening had been triggering sharp movements in the US dollar, in face of very little evidence in support of either view, Absa/Barclays analysts wrote.

"Although momentum seems to be gathering, we expect gold markets to remain wary to build large long positions, waiting instead for new fresh economic data to provide a better indication for the future of US Federal Open Market Committee (FOMC) policy path," the bank said.

"Traders seem reluctant to build substantial longs, which is likely to confine gold to its current $600/oz to $655/oz range for some time," UK-based TheBullionDesk.com analysts James Moore wrote.

Rates 'in focus'

"The prospect of the US Fed pausing in their rate hiking cycle following a probable 25 basis point hike in the next FOMC meeting should certainly continue to weigh on the US dollar and in turn support the yellow metal. This however hinges on the fact that interest rates remain in focus, as should growth be brought into the spotlight and a relatively robust US economy might limit losses on the greenback in the coming weeks," Johannesburg-based ETM analysts wrote.

Platinum was last quoted at $1218/oz, down $9/oz from Thursday's close, while palladium was last quoted at $311/oz, down $1.50/oz from the previous close.

"Platinum and palladium remain range bound although palladium continues to struggle to rally," Reade wrote.

The thinner holiday market conditions at the moment were likely to confine both platinum and palladium to their current ranges, with platinum trading between $1200/oz and $1250/oz and palladium trading between $300/oz and $330/oz, Moore wrote.

"Platinum remains the stronger of the two metals given the market supply and demand fundamentals," he added.