Many market watchers remained long-term bulls on gold although they said the precious metal could correct further after rising as much as $US400 since July on speculation the Fed this week would announce new plans to stimulate a sluggish US economy.
"With that big sell-off in Germany, it spooked people about the financial problems lurking in Europe and the European banks. You will probably see gold pull back a little more, but the (upward) trend would still be intact," said Evan Smith, co-manager of Global Resources Fund at US Global Investors, which manages $US2.5 billion in assets.
Spot gold was up 0.5 per cent at $US1,759.99 an ounce by 2.32pm EDT (0432 AEST) in choppy trade, about $US60 above a session low of $US1,702.44, its lowest in nearly two weeks.
US December gold futures settled up $US5.90 an ounce at $US1,763.20.
Trading volume was extremely heavy for a third straight day, on pace to be one of the highest this year.
Copper also jumped nearly two per cent to close at a three-week high.
Germany's DAX dropped as much as four per cent on rumours Germany could enact a short-selling ban following the example of other European nations.
A German Finance Ministry spokesman told Reuters they were not planning a general short-selling ban.
PRICES UP AHEAD OF BERNANKE SPEECH AND HURRICANE
Oil prices also rose modestly as traders await a major speech by Federal Reserve Chairman, Ben Bernanke, and the arrival of Hurricane Irene on the US east coast.
New York's main contract, West Texas Intermediate (WTI) light sweet crude for delivery in October, gained 14 cents to close at $US85.30 a barrel.
In London, Brent North Sea crude for October added US47 cents to settle at $US110.62 a barrel on the IntercontinentalExchange.
On Friday, Bernanke is set to give a speech at a central bankers' conference in Jackson Hole, Wyoming, which will be scrutinized for hints of whether he supports further monetary-policy action to boost the US economy.
Last year on the same occasion, the Fed chief had unveiled a second round of quantitative easing, a $600 billion bond buying spree that flushed the US and world economies with cash and sent the dollar falling and asset prices rising.
Traders were also waiting for Hurricane Irene, which was no longer bearing down on the US Gulf of Mexico coast - home to many refineries and offshore oil rigs - and was instead heading for the US east coast.
"Fears of demand destruction should run high as Irene and her ferocious winds could do some major damage. We need to say a prayer that Hurricane Irene will turn and do the least possible damage," said Phil Flynn, an analyst with PFGBest Research.
The oil market was meanwhile underpinned by ongoing unrest in Libya, with analysts saying the petroleum-rich North African country may take longer than expected to get its crude production facilities back to normal.
"Over the coming week, crude markets will be looking for clearer information on the condition of the Libyan oil and gas infrastructure," said Sanjeev Gupta, head of Ernst & Young's Asia-Pacific oil and gas practice.
EURO SLIPS AGAINST DOLLAR
The euro slipped against the dollar as markets remained cautious on the eve of US growth data and US Federal Reserve Chairman, Ben Bernanke's speech.
In London deals, the euro slid to $1.4369 from $1.4414 late in New York on Wednesday.
The euro gained against the yen to 111.20 yen from 110.94 yen Wednesday. The dollar also increased to 77.39 yen from 76.97 yen.
Analysts said the foreign exchange market would not see any major moves until Friday's much-awaited speech.
"Despite this week's rally in equity markets, nervousness remains about what lies in store this Friday at Jackson Hole," Michael Hewson analyst from CMC Markets said.
ASIAN MARKETS JUMP AFTER WALL STREET RALLY
Asian markets surged on Thursday, following another rally on Wall Street and ahead of a Bernanke's speech.
The more positive mood -- helped by a strong batch of US manufacturing data -- saw safe haven assets fall, with gold tumbling further from its record high above $US1,900 and the yen weakening.
Regional firms with links to Apple slipped while its rivals rose after Steve Jobs announced his resignation as chief executive of the US computer giant on Wednesday.
Tokyo closed 1.54 per cent, or 132.75 points, higher at 8,772.36 while Seoul rose 0.56 per cent, or 9.80 points, to 1,764.58 and Sydney added 0.98 per cent, or 45.2 points, to 4,212.8.
Hong Kong rose 1.47 per cent, or 285.69 points, to 19,752.48 while Shanghai soared 2.92 per cent, or 74.17 points, to 2,615.26.
Traders took their cue from a third straight day of gains on Wall Street, where sentiment was boosted by data from the US Commerce Department showing new orders for durable goods rebounding 4.0 per cent in July from June, suggesting manufacturing growth
could pick up in the coming months.
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