LONDON, Dec 16: Gold bounced back above $500/oz in Europe on Friday, gaining nearly two per cent from an earlier two-week low scored when the yen’s rise against the dollar sparked heavy liquidation in Japan.

While the precious metal could easily fall further due to the weight of selling from Japanese investors and potential year-end liquidation, most expected good buying on price dips.

The last 15 days should be dismissed as emotional froth that has temporarily obscured a fundamentally strong picture, said Paul Merrick, vice-president commodities and foreign exchange at RBC Capital Markets.

We would expect gold to fall no more than $10 more before resuming its bullish run in a more seemly manner.

Many participants had retreated to the sidelines, warily eyeing gold’s impressive near-$50 price fluctuations this week, which began with bullion peaking at $540.90 — its highest in nearly 25 years, only to fall right back to $492.90 in Asia.

Spot gold was quoted near the day’s highs by 1028 GMT at $502.00/502.80 an ounce, still down from $503.80/504.50 late in New York on Thursday, but well off the low-point in Asia.

We have moved the best part of $50 this week and as such I think that this will frighten people away until the New Year at least, leaving the speculators and the Japanese investors to fight it out, said Simon Weeks, director precious metals at Scotia Mocatta.

On that basis, the overall risk is still on the downside although there will obviously be pockets of demand which should be sold.

The physical sector saw some pre-Christmas buying from jewellers in Singapore and Malaysia.

Alan Williamson, metals analyst at HSBC bank, said in his daily report that while it was still too early to conclude the market had found a bottom, it did seem as if the recent period of aggressive selling may have come to an end.

Gold would certainly remain at the mercy of Japanese investors until they were able to unwind all of their trades.

Platinum eased to $953/958 an ounce from $956/961 late in New York. Sister metal palladium fell to $257/252 from $263/267 an ounce.—Reuters