LONDON, Dec 23: Gold firmed in European dealings on Friday and stayed above $500 an ounce in a thin market ahead of the Christmas holiday, but the metal is prone to sharp price fluctuations in the last trading days of the year.

With many dealers away from their trading desks, a few big transactions could easily move prices. Japanese markets were closed on Friday, while European players are abouot to leave for a four-day weekend.

The liquidity is low, volumes are thin, so the volatility is unusually high. Anything can cause spikes in either direction, but currently, I think gold should hold above $500, said Yingxi Yu, precious metals analyst at Barclays Capital.

Spot gold rose to $503.60/504.40 an ounce by 1037 GMT from $502.30/503.10 in New York late on Thursday, when the metal rebounded above $500 as selling subsided. It had fallen to $489 on Wednesday.

Overall sentiment remained bullish and gold was expected to target last week’s near-25-year high of 540.90 an ounce in the first weeks of 2006, dealers said.

Trading conditions are set to remain thin in the coming sessions which could give rise to a degree a price manipulation by certain sources, said James Moore, precious metals analyst at TheBulliondesk.com.

People were likely to avoid buying at around $509-$513, but might step up purchases if prices fall to $485. Gold should hold in a range of $490-$505 in the near term, he said in a report.

Jewellery makers in Hong Kong and China normally stock up a few weeks before the Lunar New Year, when most Chinese return home from the holidays and demand for jewellery rises.

In other precious metals, platinum was steady at $960/964 an ounce, while palladium rose to $251/255 from $247/251 late in New York.

Dealers said platinum would continue to find support above $940, with industrial buying and supply-demand factors helping the metal that rallied to its highest level in nearly 25 years at $1,015 this month.

Silver edged up to $8.52/8.55 from $8.49/8.52 late in the US market. —Reuters