Gold tracked back in Europe on Tuesday afternoon after prices failed to reach a near-16 year peak above $430.50 for the fourth time this year on Monday, but trade was thin as investors focused on the US presidential poll. The closely contested race for the White House could well undermine the dollar and prop up gold as a safe haven if the winner was not immediately clear, dealers said.
Dealers said that a clear win for President George W. Bush could be short-term dollar bullish, pushing gold lower, while the reverse was seen if Democratic Senator John Kerry prevailed.
Spot gold dipped to $423.00/423.70 per troy ounce by 1520 GMT, compared with $426.75/427.50 quoted late in New York on Monday.
Currencies pressured the market, with dollar moving higher against the euro as the US polling day got underway - making dollar-denominated bullion more expensive for non-US investors.
The euro was last quoted at $1.2696.
"We've been confined to a dollar range for most of the day in London head of the US elections," one dealer said.
"Not a great deal is expected in terms of activity outside of well worn ranges before the big event," another added.
Many polls have shown the race between President George W. Bush and Democratic Senator John Kerry in a dead heat nationally, and the election could potentially mimic the drawn out cliffhanger that occurred in 2000.
Four years ago repeated lawsuits over ballot recounts in Florida put the election on hold for five weeks, before the Supreme Court finally halted them and George W. Bush won the White House.
However, analysts said the dollar, which came within a cent of its record low against the euro last week, has already felt the pain of this uncertainty and was poised for a possible bounce higher.
HSBC metals analyst Alan Williamson said that gold was at a critical juncture, having failed to get through $430, with large speculative exposure on New York's COMEX futures market raising fears of a sell-off.
"With such a weight of fund long positions still in the market, the risks to prices are more weighted to the downside we believe," Williamson said in a daily report.
"While we continue to believe that the trend in gold prices is likely to be higher over the coming months, gold remains vulnerable to the occasional downwards correction," he added.
Platinum saw further seepage after drifting down on Monday, with spot last quoted at $824.00/828.00, from $832.00/836.00 last quoted in New York.
Palladium was at $208.00/212.00 from $207.00/211.00 previously. Silver moved lower in line with gold to $7.14/7.17, versus $7.32/7.35 in New York.