Gold declined on Tuesday as oil prices slipped nearly 2 percent and as traders took profits after the previous session's 11-week high. The weaker dollar and interest in bullion as a haven from risk, as violence continues in the Gaza Strip, limited losses. Spot gold was quoted at $869.40/871.40 an ounce at 1355 GMT, down from $877.50 late in New York on Monday.
In that session bullion rose to a high of $889.55, its strongest since October 10, as tensions in the Middle East fuelled buying. "Gold has been gaining on the back of the recent developments in the Middle East that emerged over the weekend," said Pradeep Unni, senior analyst at Richcomm Global Services. "However, gains are unlikely to hold as the technical momentum is quite weak."
US gold futures for February delivery fell $4.00 to $871.30. However, the weak pound took spot gold to a new record high in sterling terms of 611.97 pounds, according to Reuters data, up from 603.72 late on Monday. Oil prices shed 2 percent and fell back below $40 a barrel as fears over falling demand overshadowed the situation in the Middle East.
"The situation in the Middle East and Gaza triggered movements in oil and in gold as well, but given the volumes actually seen, the reaction was overdone, and a degree of profit taking has set in," said Simon Weeks, director of precious metals at the Bank of Nova Scotia.
Losses in gold were curbed by weakness in the dollar, which typically boosts bullion's appeal as a currency hedge. The dollar softened as traders trimmed long positions in the US currency in the last few trading days of the year. Currency traders were awaiting US data due out later in the session, including December consumer confidence at 1500 GMT and Chicago PMI numbers at 1445 GMT, to give fresh direction to the markets.
The tensions in the Middle East were also supporting gold. Israel hit the Gaza Strip with fresh airstrikes on Tuesday and warned it was prepared for "long weeks of action", on the fourth day of violence in the region. "Increased geopolitical risk could redirect tactical investment flows back into precious metals," said Standard Bank analyst Manqoba Madinane.
Interest in gold-backed exchange-traded funds remains firm, meanwhile. Holdings of the world's largest bullion-backed ETF, New York's SPDR Gold Trust rose nearly 5 tonnes to a record 780.23 tonnes on December 29, the trust said. Among other precious metals, spot silver tracked gold lower, slipping to $10.78/10.86 an ounce from $10.85 late in New York on Monday, when it touched a near two-week high of $11.23.
"Given the increased demand for safe-haven asset types, we anticipate silver will look to test the $11.60-12.40 area soon," said James Moore, an analyst at TheBullionDesk.com. Platinum and palladium both eased after the last session's gains and continue to suffer from fears over the outlook for the car market. Spot platinum slid to $897/902 an ounce from $915.50, while palladium eased to $180/185 an ounce from $185.50.