Gold eased from its near-18-year peak on Thursday on profit taking, but concerns about US economic growth and inflation fears due to high oil prices could spark more fund buying.
Spot gold traded at $466.30/467.00 a troy ounce in Europe by 1515 GMT, down about 1.8 percent from the Asian peak of $475 that was the highest level since January 25, 1988. It closed in New York on Wednesday at $469.90/470.60.
"Some profit taking is going on and if Hurricane Rita is not that big as expected, then we will probably see the dollar strengthening," said Yingxi Yu of Barclays Capital.
Gold generally falls with a strong dollar as the dollar-priced metal becomes costlier for holders of other currencies.
The precious metal stood firm in other currencies, scoring a new record high in euro terms at 389 euros and its firmest in Australian dollars since early 2003.
Hurricane Rita weakened but still remained a dangerous Category 5 storm. It poses a threat to the US Gulf Coast and energy production.
"I think some correction was due from $474-$475 level we saw this morning," said a gold trader, adding prices could fall to $460-$465 and hold around that level for some time.
He said gold might rise again next week.
"Very few people want to trade the market from the short side as hurricane (Rita) reaches a genuine threat," said David Holmes, vice president of commodities at RBC Capital Markets.
"People are very focussed on inflation at the moment and gold is a traditional hedge against inflation. My view is that people are not going to sell aggressively until the beginning of the next week."
Some traders said gold could trade in a range of $480-$485 an ounce in the next week as concerns regarding US refinery production were mounting. In the longer term, the metal may touch the $500 mark, they said.
Oil raced towards $68 a barrel on Thursday as Hurricane Rita threatened to batter oil and gas infrastructure in the Gulf of Mexico that is struggling to recover from Katrina.
"I would see gold relatively well supported at $470 until we know the outcomes of Hurricane Rita. Don't expect to see a retracement until we know the outcome of that," said Darren Heathcote, head of trading at N M Rothschild in Sydney.
Some traders said any selling by European central banks would be negative for gold, but strong physical demand in India and the Middle East was expected to give support to gold.
"I don't think it's all over for the gold market right now. I believe this is a short term correction phase," Yu said.
The second year of a five-year pact to limit gold sales by European central banks starts on Tuesday.
The dollar firmed as traders tried to assess how damaging Rita would be to the US Gulf coast and its oil industry.
"We are seeing mostly speculative buying on security concerns and inflation, but the price is still as much a reflection of the US dollar as anything else," said Andrew Harrington, Australia and New Zealand Bank sector analyst.
Silver was flat at New York's last quoted level of $7.35/7.38 an ounce. It hit its highest level in more than three months at $7.45 in Asia.
Platinum rose to a 17-month peak at $933 in Asia before retreating to $923/927 an ounce down from $927/931. Palladium stood at $196/198 an ounce from $195/198.
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