Gold was barely changed in Europe on Thursday morning with the market virtually frozen after Wednesday's selling spree, which saw the metal fall to its lowest this year, and dealers said further drops could be on the cards. Wednesday's rout, which saw the market touch a three-month low at $392.50, was sparked by the dollar's ascent to a three-week high following eurozone concerns about the strength of the single currency. A rising U.S. currency dulls dollar-denominated gold's allure as a safe-haven for investors. "We've moved down to a range, which we're basically at the bottom end of now. The market really has been tracking the dollar tick for tick, this drop makes it clear, but I think at some point below $390 I imagine we will see some gold-related buying," one dealer said. Scattered physical demand lifted gold in Asian trade earlier on Thursday, but the market lacked direction and was vulnerable to volatile moves due to thin liquidity. "Volume really has been very thin today -- people are looking closely at where we go from here," another dealer said.
Spot gold was quoted at $394.10/394.80 at 1148 GMT, compared with $395.75/396.45 last quoted in New York on Wednesday. While some analysts were confident of seeing the market turn higher helped by physical buying at the lower levels, others said that further, sharper losses could be in the pipeline if the dollar garnered more strength. The dollar was trading at $1.2440/43 against the euro, after touching a low of $1.2417 earlier. Gold is now more than 35 dollars away from a 15-year peak touched in early January when the market reached $430.50, as the euro hit a record high against the dollar. Silver also lost out sharply as the white metal, which had been benefiting from its industrial fundamentals, wore its precious hat and fell in line with a falling euro. Dealers said losses were exacerbated by the market's thin conditions. Silver was quoted at $6.38/6.40 an ounce, compared with $6.53/6.55 in New York on Wednesday. "There is probably some room for speculators to buy silver again, however, this will probably have to wait until traders become more certain that gold's sell-off has well and truly ended," UBS Investment Bank precious metals analyst John Reade said in a daily report. In other precious metals, platinum made solid gains to $860.00/865.00 an ounce from $852.00/856.00 in New York late on Wednesday, while palladium stood at $225.00/230.00 an ounce from $224.00/229.00 previously.//