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Gold surged more than 2 percent on Friday on end-of-quarter short-covering, but bullion still posted its largest quarterly loss in at least 45 years due to selling amid fears the U.S. Federal Reserve may wind down its stimulus program.
Bullion's 2.3 percent rally was particularly impressive on a day that had little macroeconomic news and no dramatic movements in other commodities and financial markets. Silver jumped 6 percent for its biggest one-day jump since January 2012.
After Friday's rally, gold is still 23 percent lower for the second quarter, its biggest decline since at least 1968, Reuters data shows.
Some investors aggressively bought back their bearish bets on fears gold could rebound, while others squared their books on the last trading day of a dismal second quarter after Thursday's 2 percent drop as funds polished portfolios through the practice of window-dressing.
"You've seen an over-run on the downside here. I am not positive that this is the low but we are very close to it," said John Hummel, AIS Group's chief investment officer, who manages $400 million in assets including a managed futures fund.
Spot gold was up 2.2 percent at $1,226.46 an ounce by 2:38 p.m. EDT (1838 GMT), rebounding sharply from a low of 1,180.71 an ounce, which marked the cheapest price since August 2010.
Friday's rise was the metal's biggest one-day gain since May 20.
Gold's relative strength index climbed to 28 on Friday but still below 30 in an area technical analysts regarded as oversold.
Mark Arbeter, chief technical strategist at S&P Capital IQ, said: "It will take months for gold to trace out a potential bullish reversal formation because of the severe technical damage."
Thursday's slide to below $1,200 an ounce for the first time in three years has prompted nervous investors to buy put options to hedge against further losses.
U.S. Comex gold futures for August settled up $12.10 at $1,223.70 an ounce, with trading volume at around 310,000 lots, nearly 50 percent its 30-day average, preliminary Reuters data showed.
Open interest of Comex gold rose 1 percent to around 400,000 lots, suggesting more participants added bearish positions, traders said.
PHYSICAL DEMAND LAGS
Bullion has taken a beating - losing as much as 15 percent or about $200 an ounce - since the beginning of last week when Federal Reserve Chairman Ben Bernanke laid out a strategy to roll back the bank's $85 billion monthly bond purchases in a recovering economy.
After a spectacular surge in physical demand after a $200 two-day dive in April, dealers and jewellers said consumers across the world are reluctant to buy even after the latest price decline.
With one day left in the month, sales of the U.S. Mint's American Eagle gold coins in June stand at only 47,000 ounces, a fifth of what was sold in all April, when sales hit a 3-1/2 year high. Silver Eagles sales are down 20 percent.
Investors, not individuals, are likely to hold the key for prices in the second half. The world's eight largest gold ETFs lost 530 tonnes of gold in the first half of 2013, equivalent to about 10 percent of annual gold production.
Among other precious metals, silver rose 5.9 percent to $19.53, rebounding sharply from a near three-year low at $18.19 an ounce. Platinum rose 1.7 percent to $1,335.49, while palladium also gained 1.7 percent to $655.85.