LONDON, Dec 19: Gold rebounded in European trade on Monday after tumbling last week from its recent near-25-year highs, with emerging physical demand and fresh buying interest seen supporting prices, analysts said.

Prices were expected to remain volatile in the next two weeks, with many players away from their desks during the end-year holidays, they said.

The sell-off has been pretty savage but I think it is overdone. I think we will see the market move up towards the $520 (an ounce) level, said Peter Hillyard, head of metals sales, Europe, at ANZ Investment Bank.

Now we have got into a situation where profit has been taken and people have got nervous and went short. If anything, I think we will see short covering and new investor buying.

Spot gold was quoted at $506.90/507.60 an ounce by 1533 GMT, up from $502.90/503.70 late in New York on Friday.

Profit-taking had resulted in a nine per cent drop in gold prices to $492.90 on Friday from the high of $540.90 achieved last week on worries about inflation and economic growth.

Paul Merrick, vice-president of commodities at RBC Capital Markets, said prices could rise up to $520 by the year-end. On the downside, gold could see $500.

With year-end rapidly approaching, pockets of long liquidation are likely to remain the norm as hedge funds and large scale investors lock in profits, James Moore of TheBulliondesk.com said in a report.

Dealers said the drop had also attracted physical buyers and small investors, with purchasing seen in India, the world’s largest gold consumer, and other parts of Asia.

Retail buyers, who purchase ornaments for the wedding season around this time, have started buying as they think further delays could result in a further rise in prices, said Dipen Mandalia, director at India’s LKS Bullion Private Ltd.

Singapore, a centre for bullion trading in Southeast Asia, has seen buying interest from local and Malaysian jewellery makers as well as investors from Thailand, suggesting that buyers are now used to the $500 level.

In other precious metals, platinum rose to $972/976 an ounce from $957/961 late in New York, aided by a sharp rise in Tokyo platinum futures.

Silver was at $8.58/8.61 an ounce, versus 8.52/8.56.

—Reuters