Gold fell from a record high hit earlier on Thursday as the dollar rebounded from its lows, but the market was still expected to seek higher ground due to prospects for central bank buying and further dollar weakness.
Spot gold hit a record high of $1,194.90, but had retreated to $1,182.70 an ounce by 1023 GMT versus its last quote of $1,190.30 in New York late on Wednesday.
"The sentiment towards gold is still very positive," said Suki Cooper, analyst at Barclays Capital. She cautioned however that prices could be subject to a short term correction.
Bullion has gained more than 37 per cent this year - including a 13-per-cent rise in November alone on dollar weakness, expectations of further reserve diversification by central banks and fears of inflation next year.
Late on Wednesday, the International Monetary Fund said it had sold 10 tonnes of gold to the Central Bank of Sri Lanka, a part of the 403.3 tonnes approved for sale by the fund's executive board in September. The fund has already sold 202 tonnes to the central banks of India and Mauritius.
The dollar recovered some poise after hitting a 14-year low against the yen as traders betting against the U.S. currency cashed in on its recent slide. Against a basket of currencies, the U.S. currency was up by 0.37 per cent.
U.S. December gold futures also rose to a fresh high of $1,195.00 per ounce. Futures were last at $1,182.60 an ounce, compared with $1,187.00 on the COMEX division of the New York Mercantile Exchange.
Gold has soared to new highs five times in the last ten trading sessions, and three times this week.
Traders said Dubai's move to restructure its biggest corporate debtor, Dubai World and delay on some of the company's $59-billion of liabilities had an indirect impact on gold as it moved the dollar.
Central Banks, particularly in Asia, increasingly looking to diversify their foreign exchange reserves after India's purchase of 200 tonnes earlier this month is a major factor buoying the yellow metal.
"Everybody is bullish on gold, and everybody is looking at the signal central banks are sending," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
"It's not just India or China ... everybody is looking at how much money they will invest in gold," he said.
Any decision on whether India would buy more gold from the IMF would be taken by the Reserve Bank of India, Indian finance ministry official Anup Pujari, joint secretary for multilateral institutions, told Reuters on Thursday.
Mr. Poon said there was a lot of physical demand despite high prices, with Asian buyers seen in the market.
"Reserve diversification moves by non-G7 central banks underscore investor detachment from U.S. dollar assets and is clearly reflected in gold's rally," said Shuji Sugata, a manager at Mitsubishi Corp Futures research team.
U.S. markets will be closed on Thursday for the Thanksgiving holiday. Traders said volume was not large, with many players kept to the sidelines due to the Thanksgiving holiday.
Gold's rally pulled other precious metals higher, with platinum rising as high as $1,480.00 per ounce, its highest since late August, 2008.
Silver was at $18.42 an ounce versus $18.82 an ounce while palladium was at $367.50 an ounce versus $370 an ounce on Wednesday.