Gold regained strength on Friday as bargain hunters and investors resurfaced to take advantage of the metal's sharp drop the previous day.

Dealers expected volatile trade ahead, following gold's fall to its lowest level in two weeks to $782.35 on Thursday -- a drop of more than $35 after the metal hit an intraday high of $817.90 on buying interest from Japanese and U.S. investors.

Spot gold rose to $790.40/791.10 an ounce from $785.80/786.60 late in New York on Thursday, when a bounce in the dollar and lower crude oil ignited heavy profit taking.

Gold has already started to push up from the overnight lows and an end to the week above $800 is by no means out of the question, said Tom Kendall, metals strategist at Mitsubishi Corporation.

Although we do not discount the possibility of another round of liquidation, the heavy selling seen in the past days has shaken a lot of longs out of the market. Sub-$800 prices are also starting to look attractive for jewelry buyers and mine de-hedgers.

Gold was trading below this year's peak of $845.40 hit on November 7 -- the metal's best level since January 1980 when it struck a record high of $850. Gold is seen in a correction mode after hitting the 28-year high, dealers said.

The dollar marginally gained on Friday against the euro.

Gold often moves in the opposite direction of the dollar and is generally seen as a hedge against oil-led inflation.

Oil prices edged higher near $94 a barrel, rebounding from losses the previous session after a surprise build in weekly U.S. crude stocks.

I suppose a lot will depend on what happens to the U.S. dollar going forward. Obviously, the U.S. dollar is still at soft levels against the euro after all, said David Moore, a commodity strategist at the Commonwealth Bank of Australia.

It's still a very uncertain outlook. If U.S. dollar were to come under pressure again, and if oil prices were to turn around, then we might see gold prices move higher again.

In other bullion markets, The October 2008 delivery contract in Tokyo tumbled by the daily 120 yen per gram to 2,814 yen as the yen's gains against the dollar ignited selling.

The most active December gold contract on the U.S. futures market gained $3.9 an ounce to $791.1.

We are maintaining our bullish outlook for gold into 2008. However, we believe the next two months will present another opportunity to accumulate long exposure given the tendency for the U.S. dollar to strengthen in the first four weeks of a new year, Deutsche Bank said in a report.

The financial year end in many financial institutions occurs at the end of this month. Historically this has been a period where investor positions are scaled back, which in our view exposes the gold price to a short-term correction.

Spot platinum fell to $1,426/1,431 an ounce from $1,428/1,432 New York. Earlier this week, a correction in gold pulled platinum down to a one-month low of $1,385.

In industry news, South African miner Aquarius Platinum said on Thursday it had shut the central shaft at its Kroondal mine after a worker was killed in a rockfall.

Silver rose to $14.48/14.53 from $14.35/14.40 an ounce, while palladium fell $3 an ounce to $370/373.

(Additional reporting by Lewa Pardomuan in Singapore)

(Reporting by Atul Prakash; Editing by Michael Roddy)

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