LONDON, Dec 4: Gold erased overnight gains to marginally decline in Europe on Monday and silver traded off six-month highs, with traders watching the dollar movement for direction ahead of the year-end.

Thin trading could exaggerate price movements, but analysts said the metals had potential to move upwards.

Spot gold hit a high of $647.70 an ounce in Asia and was at $644.50/645.50 by 1041 GMT, versus $645.20/646.20 in New York late on Friday.

Gold can still go higher from where we are, with $650 easily on the card. And if you are lucky, depending on the US data flow, $700 is possible -- though a steep target, said Michael Widmer, analyst at Calyon Corporate and Investment Bank.

It will become more difficult now for the dollar to remain strong. Previously you could say only a few sectors like the US housing market had got problems, but now it's the manufacturing sector that has contracted in November.

That highlights the problems that you are having at the moment in the United States. The dollar slumped on Friday after the Institute for Supply Management's survey of national manufacturing showed a contraction in the factory sector for the first time in more than three years.

The US currency came within cents of its record lows against the euro on Monday.

A weaker dollar makes gold cheaper for holders of other currencies. Investors also tend to shift their money to the commodities sector from currencies for higher returns.

At the moment it looks like the metal is in an upward trend, with support sitting at present at $639, said Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Germany's Heraeus.

Should the euro/dollar rate and the oil price peak at some stage, we wouldn't rule out that the yellow metal tests the lower end of the range.

Despite this overhanging threat, the picture remains, in our view, healthy and any bigger fall could prove to be a good buying opportunity, he wrote in a report.

Silver matched Friday's six-month high of $14.05 an ounce and was last quoted at $13.98/14.05, against New York's $13.98/14.05 an ounce.

Silver spiked to a 25-year high of $15.17 an ounce in May, a jump of 72 per cent from the start of 2006, as speculators poured money in anticipation that an ETF, called iShares Silver Trust, would boost demand and widen the market deficit.

Platinum rose to $1,160/1,165 from $1,153/1,168 an ounce in the US market, but remained well below a record-high of $1,395 yen hit in late November. Palladium eased to $326/330 an ounce from $328/333.—Reuters