Gold pared gains after rallying to a record high Monday, as crude oil prices sharply pulled back and safe-haven buying eroded amid speculation that Libyan leader Muammar Gadhafi was seeking a deal to leave the country.
Silver gained more than 1 per cent, having earlier touched a 31-year high on strong physical demand and short-term supply tightness. Silver's outperforming over bullion sent the gold-silver ratio to a 13-year low under 40.
Precious metals rallied earlier in the session on news that Gadhafi's warplanes counter-attacked against rebels, but prices retreated on unverified rumours of a deal involving Gaddafi leaving Libya.
"It's just consolidation and profit-taking," said Bruce Dunn, vice president of bullion dealer Auramet Trading. "The dollar strengthened, oil came off almost $2 a barrel, and that's why the gold market also came off."
"With all the problems in Africa and the Middle East, we are likely to see huge price spikes and high volatility. I don't see that changing anytime soon," Dunn said.
Gold was also dragged lower on margin-type selling as Wall Street fell 1 per cent, and as the euro was little changed against the dollar after having earlier hit a four-month high as expectations of a euro zone interest rate hike next month faded.
Spot gold hit a record $1,444.40 an ounce as violence flared in Libya and after a downgrade of Greece's credit rating by Moody's reignited euro zone sovereign debt worries, which helped fuel a bullion rally last year.
Gold rose 0.4 per cent to $1,434.50 an ounce by 3:10 p.m. ET, while U.S. gold futures for April delivery settled up $5.90 an ounce to $1,434.50. Gold prices in London had risen further after U.S. futures settled on Friday, resulting in a sharper gain in U.S. prices on Monday as they caught up.
Gold's volume was higher than its previous session's and was largely in line with its 30-day average, preliminary Reuters data showed.
Silver gained 1.3 per cent to $36.08 an ounce. The metal rose to its highest since early 1980 in earlier trade at $36.70 an ounce.
The gold/silver ratio fell below 40:1 for the first time since February 1998, the weakest since billionaire Warren Buffett bought 130 million ounces of silver between 1997 and 1998.
GOLD/OIL LINK TIGHTENS
The positive correlation between gold and oil have tightened of late, as political instability in the Middle East and North Africa stoke energy supply worries, confirming bullion's status as an inflation hedge. In the past 12 months, however, the gold-oil link remained largely erratic.
Other commodities including industrial metals led by copper and grain futures also tumbled, largely following oil's weakening.
Since late January, gold has gained 10 per cent, while oil soared more than 25 per cent over the same period on concern that chaos in Libya, an oil exporter, could lead drive up global energy prices.
"The geopolitical risk premium is clearly reflected in the gold price," said Robin Bhar, an analyst at Credit Agricole. "The violence (has) intensified which does prompt suggestions of civil war in Libya."
Gold is building on a fifth-consecutive weekly gain last week, triggered by unrest across the Arab world, which unseated leaders in Tunisia and Egypt before spreading to Libya, Bahrain, Yemen, Oman, and most recently the world's largest oil producer Saudi Arabia.
Saudi security forces detained at least 22 minority Shi'ites who protested last week against discrimination, activists said on Sunday, as the kingdom tried to keep the wave of Arab unrest outside its borders.
Platinum dropped 1.3 per cent to $1,817.24 an ounce, while palladium lost 2.4 per cent to $790.