Spot gold fell below $630/oz in early afternoon trade on Monday as it again failed to hold above this key level. The dollar and oil, both recent drivers of the yellow metal, were slightly stronger and weaker respectively.

Temporary highs

On Friday gold hit a more than two-month high of $636.50/oz following comments from China pointing at a diversification of its reserves away from the 70 percent exposure to dollar instruments.

In a note to clients on Friday, Numis Securities in London said that gold makes up one percent of the Chinese Central Banks $1 trillion of foreign exchange reserves.

"If assuming China's economy were to remain flat and the $1 trillion of reserves were to include five percent gold, then this would require gold reserves worth $50-billon," said the note.

The price has since cooled to its latest price of $624.10/oz at 1.55pm, down $4.35/oz from its closing price of $628.45/oz. It earlier traded as high as $632.65/oz.

US currency the key driver

In the November edition of the newsletter, Fortis Metals Monthly, released by Virtual Metals in London, investors are pointed out as the main drivers of gold at the moment.

"While there is always the chance that gold might recover ground lost in recent months and revisit the highs of 2006 before the end of the year, the chances of this are in the hands of investors, watching the performance of the US currency," said the newsletter.

Since 13 October, when the dollar was trading at its strongest against the euro in three months, it has weakened from $1.2480 to a low of $1.29 on Friday. Gold has followed this move and increased by $60/oz since then, from $576.50/oz to its two-month high reached on Friday.

By 2pm the dollar was slightly stronger against the euro at $1.2834, compared to $1.2851 late Friday.

The Fortis newsletter also discussed platinum saying that despite net longs on Nymex having decreased by 67 percent since the start of September, environmental legislation on toxic emissions from vehicles around the world would continue to provide a solid base for demand in the longer-term.

Platinum was quoted at $1,189.50/oz from a close of $1,206/oz. Palladium was quoted at $322.50/oz, down $7 from Friday's close.