It recovered slightly overnight on short covering ahead of the long weekend in the UK and the United States but prices fell after a US bank sold metal around midday. "We saw one big seller come in the market, a US bank, and slap the price down $1.50," one London dealer said.

Gold dropped to around $268.80 before recovering to current levels. Dealers expected bullion to continue lower with market sentiment still negative in the wake of Britain's decision three weeks ago to sell more than half of its gold reserves.

"I still think it will go lower, I am aiming for $260.00 in the medium term. The market is very short and resistance is at the $271.00 level and if we get a short covering rally which takes us through there,there is going to be a massive brick wall through to the $277.00 area," a dealer said. Gold has shed more than $20 since the UK Treasury announced it would sell 415 tonnes of its 715 tonnes of gold reserves.

Silver continued to weaken in late European trade, under pressure from a weaker base metals complex. Copper dropped to a 12-year low on Friday. Silver prices fell this week on the back of a report last Friday by the US-based Silver Institute which said demand had dropped by 2.2 per cent in 1998, while official sector sales increased more than seven fold to 52.2 million ounces.

Copper's sharp fall impacted sharply on silver, which has extensive industrial uses, dealers said. "Copper having come down $120 in the space of a couple of weeks, that has dented silver," one dealer said. Silver was last quoted at $4.89/$4.92 a troy ounce against the New York close at $4.93/$4.96. Platinum and palladium also edged lower.

Platinum was last quoted at $362.50/$364.50 an ounce from the New York close at$364.10/$366.10. Palladium was just lower at $338.00/$343.00 against the $339.00/$344.00 New York close. A Russian official said on Friday the country's palladium sales on the world market would be limited over the next few months.

"One reason for that are low prices which are not attractive to the metal's owners, and the other is the five per cent export tariff," Yevgeny Ivanov, vice-chairman of Rosbank, which controls Russia's sole producer Norilsk Nickel, said. "Sales are continuing, but volumes are significantly lower," he added.