Updated from 12:58 p.m. EST

Gold bounced slightly Monday, but following last week's plunge some market watchers were bracing themselves for another potential drop.

Contracts for February delivery of gold rose $2.50 to close at $609.40 an ounce on the Nymex. The bullion holding exchange-traded funds, streetTRACKS Gold Shares ( GLD) and the iShares COMEX Gold Trust ( IAU), followed suit, each adding about 0.5%.

Despite the minirally, investors would do well to act with caution, because at least one key technical indicator has turned particularly bearish.

"Friday was a big day. We broke though a head-and-shoulders top and pierced the neckline at around $611," says Joe Palmisano, chief technical analyst at IDEAglobal in New York. "This suggests we could see a measured move down to $580 before all is said and done."

He adds that any strength will likely be capped by selling around $620 to $625.

Other observers concur and point out that traders have to be alert for a possible shift.

"Gold cannot be immune to a commodity bubble cave-in, at least in the initial phases," says Jon Nadler, an analyst at Montreal-based bullion dealer Kitco. Nadler noted that the meltdown in the base metals market, which has seen weakening fundamentals lately, may be dragging down gold, as well.

The action in the currency markets, a key driver of bullion prices over the past few weeks, was taking something of a backseat. One dollar was recently buying 118.58 yen, down from 118.68 yen late Friday. One euro was buying $1.3023, up marginally from $1.30 previously.

Turning to the miners, the Chicago Board Options Exchange Gold Index rose 0.1%, buoyed by the rising metal prices.

Negatively impacting the index somewhat were shares of component company Newmont Mining ( NEM), lower by 1.9% at $42.84. Prudential cut its rating on the mining giant to underweight from neutral and trimmed the stock price target to $40 a share from $50.

Meanwhile, in the base metals sector, copper prices saw a rally erased in late action, with contracts for March delivery closing off 0.7 cents at $2.528 a pound on the Comex. Prices hit an intraday high of $2.585 a pound.

The dip marks another dour day for a copper traders, who have seen prices tumble lately. As recently as November, copper for immediate delivery averaged around $3.19 a pound, according to data from the London Metal Exchange.

A new report from the Economist Intelligence Unit, a provider of country, industry and management analysis, is forecasting that prices will rebound somewhat and have a mean price throughout 2007 of $3.04 a pound.

"You are likely to see some bargain-hunting emerging around these levels," says Kona Haque, a commodities analyst at EIU in London. Haque adds that China's re-entry into the market as an importer will bolster demand during the year and drive prices up from current levels.

Shares of miner Freeport-McMoRan Copper & Gold ( FCX) gained 1.5%.