Gold closed lower on Thursday on profit-taking following an early rise to fresh 18-month highs, but dealers were confident the battered U.S. dollar would continue to underpin and further gold's advance.
"People got kind of tired pushing towards the highs. What I would add to that is the weakness in the stock market. After the Philadelphia Fed number had some disappointing components to it, stocks fell off their highs and gold peaked at the same time," said Tom Pawlicki, precious metals analyst at MF Global in Chicago.
Spot gold was at $1,013.95 (U.S.) an ounce at 1509 ET compared with $1,016.70 late in New York on Wednesday, having earlier hit an 18-month high of $1,023.85.
In New York, December gold futures were down $6.70 to settle at $1,013.50 an ounce on the Comex division of the New York Mercantile Exchange.
Early in the session, the contract rose to $1,025.80 an ounce, a fresh high last visited in July, 2008.
Despite the dollar's renewed declines to its lowest level in nearly a year against the euro, gold remained at lower levels into the futures close.
U.S. stocks also fell, weighed down as investors paused following a three-day run-up, triggering losses in gold. Gold prices were stuck in a fairly narrow band, however, and found support at session lows.
"There may be some speculation that the dollar is going to continue to fall for the rest of this year and early next year ... that could mean a drift higher for gold," said Mr. Pawlicki.
Commerzbank analyst Eugen Weinberg also said as long as dollar weakness persisted, gold's run higher is likely.
"It is realistic that we will see [the record high]in the course of the next couple of days, and should that fall, probably even more speculative money will flow into the market," he said. "Momentum is very strong and positive."
Despite overbought conditions, sentiment remained firm, with most still expecting gold to break through its record high of $1,030.80 an ounce.
But some dealers were wary about the extent of speculative positioning on the U.S. Comex futures market, with stretched conditions leaving the market vulnerable to sharp losses.
On Comex, players were keeping watch on the $1,033.90 per ounce prior record high on Comex gold's continuation chart.
"The feeling in the market is that everyone is so long, how much further can we go? It really is tracking the dollar," said Tom Kendall, analyst at Mitsubishi in London.
"Gold is a very technically traded commodity and so everyone will be looking at that $1,030 mark," Citigroup analyst David Thurtell told Reuters Television. "If that breaks, who knows where it could go."
Renewed optimism over the economic outlook is boosting interest in assets seen as higher risk, including some commodities, equities and higher-yielding foreign exchange. Global equities hit their highest in 11 months Thursday.
Exchange-traded funds bought more gold on Wednesday, with New York's SPDR Gold Trust reporting inflows of 7.628 tonnes. ETF Securities reported inflows of just over 12,000 ounces into its gold-backed products on Wednesday.
ETF buying was a key factor driving gold above $1,000 an ounce in the first quarter of 2009, but inflows have tailed off sharply since then and, while firmer, remain comparatively soft.
Among other precious metals, platinum and palladium hit their highest levels since September, 2008, and silver hit a 13-month peak, because of a better industrial output outlook.
Silver hit a peak of $17.63 as base metals took on a firmer tone. Silver is widely used in industries such as electronics manufacturing, as well as being an investment metal.
The ratio of gold to silver has fallen to 58.4 from around 64.5 a month ago.
Spot silver was bid at $17.26 an ounce against $17.35 on Wednesday. Spot platinum was at $1,341.50 an ounce against $1,344.50, having touched a 12-month high of $1,348, while palladium rose to $301.0 from $296.00.
ETF Securities said it saw an inflow of more than 8,500 ounces into its platinum-backed ETC on Wednesday.