Gold slipped about 1.2 percent in Europe on Wednesday from its highest level since early 1988 in the morning trading session when funds snapped up the metal, traders said. Platinum hovered near a 25-1/2-year peak, while silver traded closer to 10-month highs.
Spot gold rose as high as $480.25 a troy ounce, about 16 percent higher from a year ago, but dropped to $474.60/475.40 by 1513 GMT. It closed in New York on Tuesday at $476.60/477.40.
Traders, still bullish, said the market could attempt the next big psychological level of $500 an ounce as inflation worries continued and consumer demand was good.
"We have got very strong physical buying from India and the Middle East. Certainly in the next eight weeks or so, any dips will be very short-lived and very well supported," said James Moore of TheBulliondesk.com.
Traders said gold's traditional relationship with the dollar had weakened and the metal rose in the past weeks despite a rise in the dollar value.
"The gold market is likely to seek higher targets, as the bullish sentiment seems unwaveringly strong. The recent breakdown in the inverse relationship between gold and dollar strength is also encouraging," Standard Bank said in a report.
The dollar retreated on Wednesday, after sharp gains in recent sessions, in mostly technically driven trading as investors paused and booked profits ahead of a slew of US data in the next two days.
Oil climbed above $64 a barrel as investors feared that a rebound in petroleum demand would drain off stockpiles and spark a winter fuel shortage.
Analysts said Wednesday's rally in gold was driven by speculative buying and the trend was likely to continue in the coming days.
"This is just remorseless speculative investment," said Stephen Briggs, economist at SG Corporate and Investment Banking.
He said the funds' position was at unprecedented highs and a correction was overdue after such a big move.
The latest data from US exchange authorities showed that large funds were holding a near record level of 21.75 million ounces of gold.
Gold rose to multi-year highs in several currencies, which analysts see as a sign of an entrenched bull market.
Gold scaled a new record high in euro terms at 401.41 euros an ounce and 275.82 British pounds per ounce, the highest in about 12 years.
Traders said the market was vulnerable to a downward correction, but good consumer demand was expected to support.
Physical demand in India, the world's largest consumer, rises during the festival season that peaks in early November with Diwali, the festival of lights.
Traders said the market would be closely watching the release of the latest US economic data on Thursday and Friday for a direction.
Spot platinum rose to match the April 2004 peak of $942 an ounce, a breach of which would take it to the highest level since March 1980. It closed in New York at $936/939.
In other precious metals, spot silver was at $7.83/7.86 versus $7.81/7.84 last quoted in New York. On Tuesday, it rose to $7.88, the highest since December 7, 2004. Palladium was at $208/212 against $208/212 an ounce.