Gold rose nearly two percent on Friday tracking firmer oil, but pared gains in late trade on a stronger dollar that prompted some investors to take profits.

The market has been choppy and moved by an average $13 a day in a week, tracking moves in the currency and energy markets.

James Steel, metals analyst at HSBC Bank, said investors got a lead from the rally in oil, while good physical demand in India, the world's top gold consumer, also supported the market.

"The oil rally has given everybody another reason to buy gold. I am near-term bullish. I don't think gold (will go) over $600 an ounce but I think it will be strong," he said.

Spot gold hit a high of $589.00 an ounce, the highest since Oct 3, before dipping to $586.20/587.20 by 1451 GMT, against $578.10/579.10 late in New York on Thursday.

Oil extended its rebound, from a 2006 low, after oilfield shutdowns in Norway and a surprise drop in fuel inventories in top consumer the United States.

The dollar rose after a preliminary reading of a key consumer sentiment survey for October came in higher than expected.

Gold is seen as a hedge against inflation and often moves along with oil prices, but the metal generally has an inverse relationship with the dollar.

"The downside in both oil and the dollar is now very limited and we strongly believe that both are set to reverse direction in the month ahead, thus providing the gold market with a clear element of direction over the medium term," Barclays Capital said in a report.

BULLISH IN LONG TERM

Analysts remained bullish about gold's outlook in the long term. Gold producers are also looking at ways to strengthen their positions.

Barrick Gold Corp. again extended its $1.3 billion hostile offer to acquire NovaGold Resources Inc. , saying the deal was more attractive than when it was first announced.

Barrick, the world's largest gold producer, made an unsolicited $1.29 billion offer for NovaGold in July, as it sought to consolidate development projects in Alaska and British Columbia. NovaGold in August urged investors to reject the offer, saying it undervalued the company.

In other precious metals, platinum traded near a six-month low despite buying interest from jewelers and auto makers. It was quoted at $1,072/1,077 an ounce, against $1,069/1,074.

Persistent selling in Japanese futures dragged down the spot price to $1,060 on Wednesday, its lowest since early April.

"Japanese investors have been selling platinum in TOCOM because of weakness in the gold price. They don't seem to understand there's actually good demand from jewelers and auto makers," said a dealer in Tokyo.

"But I am sure platinum will recover even faster than gold because we have this autumn demand ahead of Christmas. I would say $1,060 will be the bottom price," he said.

Palladium rose to $311/314 an ounce from $303/308, while silver was little changed at $11.33/11.40.