(Reuters) - Gold prices rose on Wednesday, continuing the previous session's consolidation after Monday's heavy losses, as price-sensitive physical buyers bought into the market at lower prices, and as assets seen as higher risk retreated.
Spot gold was up 0.6 percent at $1,658.60 an ounce at 0913 GMT. It has steadied in a broad $40 trading range since early Tuesday after sliding to a near three-month low on the previous day.
Monday's dramatic $120 price drop has washed out some less committed investors from the market, analysts said, while its resilience at lower levels has fueled some tentative confidence that higher prices can be sustained.
"We reached the 200 day moving average, which should now be the line in the sand," said Saxo Bank senior manager Ole Hansen. "The only worry is obviously how burned investors have become of this 20 percent correction, as something which was perceived to be safe suddenly was not anymore."
"The downside may need to be tested and rejected one more time in order to give bulls enough confidence to re-enter," he added. "Strong physical demand should helped the market to find support relatively soon."
Gold bar premiums in India, the world's biggest bullion consumer, hit their highest in more than a year to top $2 an ounce after prices fell from the record highs, three importers and a supplier said on Wednesday.
Premiums for gold bars elsewhere in Asia jumped to their highest level since at least February after a drop in prices spurred buying from jewelers and speculators, leading to tight supply, according to dealers.
Volumes on the Shanghai Gold Exchange hit levels not seen since the Lunar New Year in January, UBS said in a note.
"Directional buyers with a long-term horizon have been active in the market," it said. "Such demand and physical buying will do a lot to help gold rebuild its reputation after the recent ugly selloff."
"The panic displayed over the past few days has dissipated to a great extent, though there certainly hasn't been a stampede back into gold. Instead, the market remains hesitant and gold continues to consolidate. We believe this is healthier than a steep push higher."
U.S. gold futures for December delivery were up $8.40 an ounce at $1,660.90.
BROAD SUPPORT
Gold is being broadly supported by concerns over the euro zone's stubborn debt crisis, which is continuing to pressure stock markets in the region.
Greece faced a new test in its attempt to avoid bankruptcy as auditors visited Athens on Wednesday. Germany suggested its bailout may be renegotiated amid talks over whether private creditors should take bigger losses.
While gold's price rout early this week has shaken its reputation as a safe haven, it remains attractive as a store of value compared to other assets, analysts said.
"If the euro zone's efforts to remedy the sovereign debt crisis falter, gold could still rally even if riskier assets sell off," said HSBC.
"Much would depend on if the financial markets become sufficiently rattled that investors turn back to bullion as a safe haven rather than trade it as a surrogate currency."
Gold traded at a near $100 premium to platinum on Wednesday as risk aversion weighed on industrial precious metals while supporting bullion. More than half of platinum demand comes from industry, primarily the automotive sector.
Platinum touched parity with gold earlier in early August for the first time in 2-1/2 years.
Spot platinum was flat at $1,559.49 an ounce, while spot palladium was up 0.8 percent at $648.72 an ounce. Silver was down 0.7 percent at $31.61 an ounce.
Silver prices have seen their second major retreat of the year this month, falling 23 percent so far in September.
"We remain of the opinion that, on a medium-term horizon, silver is undergoing a process of transformation from a basic raw material for manufacturing and jewelry to an asset for financial investment and a monetary means of payment," said LGT Capital Management in a note.
"For this reason, we believe that global investment volumes will increase and a lasting demand trend will prevail." It expects to see silver in a $42-46 range for the rest of 2011.
