Gold rose Monday, even as the euro weakened, as investors sought a safe haven when the European Central Bank issued a warning about the region's finances and Moody's said it may cut debt ratings for some Spanish banks.
Tensions on the Korean peninsula also fed the safety bid for gold after an artillery firing drill by the South Korean military on a disputed island near the border with the North.
Spot gold was more than 0.5 per cent higher at $1,384.0 an ounce by 1537 EST, having touched an intraday high of $1,388.05 in early dealings. U.S. gold futures for February closed with gains of 0.5 per cent, or 6.9 cents, at $1,386.10 an ounce.
Gold's gains came in a narrow trading range in light action. Some analysts said the precious metal should remain in a consolidation mode until year end.
"Overall, it looks like consolidation. I don't see any major driver. That's partly due to a shortened trading week in the U.S. I wouldn't be surprised to see gold remaining relatively calm this week," said Carlos Sanchez, precious metals analyst at CPM Group in New York.
He noted that the U.S. economic calendar will also be light for the remainder of 2010.
The metal briefly slipped to a session low of $1,375.84 an ounce as the euro extended losses after ratings agency Moody's said it may cut some Spanish banks' ratings, but quickly rebounded on demand for the metal as a haven from risk.
"It looks to have caught a bit of a safe haven bid," said Citigroup analyst David Thurtell. "But it's very quiet. Gold has traded a very small range since an hour after the Asian open."
He also said he expected the metal to remain in a relatively narrow range into year-end.
"Most funds have stopped for the year and won't come back until the New Year," he said.
Gold, which has risen by over 25 per cent so far this year, is on track for a fourth successive month of gains.
Greater inflows into bullion-backed, exchange-traded funds and increased open interest in U.S. futures have helped fuel gold's price rise this month.
Looking to 2011, some observers said they think gold can head higher, judging by its ability to maintain lofty levels even in a thin pre-holiday trade.
"We would expect increased activity when the year begins. We expect prices to set records in the first half of next year based on the same economic back drop as we've seen throughout this year-concerns over Europe and the U.S., but with upward inflationary pressures in developing countries," said Sanchez.
In the meantime, as prices consolidate, analysts said to be ready for a tug-of-war, even if the range is limited.
"There seems to be an overwhelming belief that the market, as it is now, is pointing higher, but we need to see the third of January come first and see how it plays out," said Saxo Bank senior manager Ole Hansen.
Holdings of gold in the world's largest gold-backed ETF, the SPDR Gold Trust, rose for the first time since early December, to 1,298.94 tonnes, reflecting investor demand for bullion.
UBS precious metals strategist Edel Tully said global ETF holdings are now at a record 69.2 million ounces and pointed to a pick-up in European coin demand late last week.
With no real clarity emerging from a two-day summit of EU leaders last week, the euro looked likely to encounter more pressure. But the same safety bid that was helping the dollar, also supported gold prices.
Silver recaptured early gains late in the session, with the spot price at $29.36 an ounce. It was still up nearly 75 per cent this year at its highest since early 1980.
iShares Silver Trust, the largest silver-backed ETF, said its holdings fell to 10,903.34 tonnes by Dec 17 from a record 10,964.14 tonnes on Dec 14.
Platinum was last higher at $1,705.24 an ounce, and palladium rose to $739.47.