Gold steadied on Tuesday after some respite in Middle East protests, an anticipated slowdown in Western air strikes on Libya eroded some of safe-haven demand for the metal, and as the dollar recovered. The pick-up in the dollar came as the euro ran into options-related selling pressure, thereby undermining gold, which has seen its correlation to the US currency reach its most negative level in two months this week.
The dollar is still hovering near 15-month lows against a basket of major currencies, which should favour gold. US President Barack Obama's pledge to cede control of the UN-authorised air assault on Libya within days helped soothe some concern over the impact of the attacks on the region, thereby reducing investors' need for gold as a safe-haven.
Spot gold was last quoted up 0.1 percent at $1,426.55 an ounce by 1430 GMT, having fallen briefly by as much as 0.4 percent to a session low of $1,418.80 before recovering.
US most-active April futures rose 0.1 percent to $1,427.80. "At the moment gold is being driven completely by geopolitics rather than by fundamentals," said RBS head of commodities strategy Nick Moore. "Things are so far going very well for the allied forces and the fact that an Arab nation has been involved is positive. The safe haven role for gold is diminishing," he said.
Reflecting some of this waning appetite to hold gold was a drop in holdings of bullion in the world's largest gold exchange-traded fund, the SPDR Gold Trust, which witnessed its largest one-day outflow since late January.
Investors are monitoring developments in Japan, where rising temperatures around the core of one of the reactors damaged by the 9.0-magnitude earthquake on March 11 triggered fresh concern over the potential for nuclear disaster. Yet analysts said any easing in the gold price did not spell an end to the market's rally that has lifted the price by more than 2 percent in the last five trading days.
"I wouldn't interpret too much into the moves of the last few moments, because volatility, not only in precious metals, but in all of the commodities is so extremely high at the moment," said Commerzbank analyst Daniel Briesemann. "This volatility shows market participants are still very uncertain about what is going on and where it is leading, so at least in theory, it should be supportive for gold."
The dollar held around 4-1/2 month lows against the euro, as investors take the view that the Federal Reserve will not tighten its monetary policy any time soon, while other central banks prepare to raise their benchmark rates as growth improves. Spot silver rose 0.7 percent to $36.30 an ounce, just a few cents away from early March's 31-year high of $36.70. Spot platinum was last down 0.3 percent at $1,736.49 an ounce, while palladium was off 0.7 percent at $739.47.
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