Gold was little changed on Tuesday as interest-rate hike worries prompted the market to take a breather, but Western air strikes on Libya and escalating political unrest in other Arab countries underpinned safe-haven demand. Gold trimmed initial gains, following the euro, but the metal stayed within striking distance of its record $1,444.40 an ounce set on March 7.
The dollar hovered near 15-month lows against a basket of currencies on expectations of a eurozone interest rate hike in April. A weak dollar benefits gold, but higher interest rates could weigh heavily on non-yielding bullion, which must compete against other interest-bearing assets for investors' fund.
"Gold is taking a time out, and that's partly due to the anxiety of some financial players regarding higher interest rates in Europe, tightening in China, Asia and other parts of the world," said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
Spot gold inched up 0.1 percent at $1,425.95 an ounce by 2:56 pm EDT (1856 GMT). US most-active April futures settled up 0.1 percent to $1,427.60 with volume at about one-fifth lower than its 30-day average. On the charts, a rising channel dated back to January indicates gold will target above record $1,500 an ounce after it breaches resistance area between $1,445 and $1,466, said Rick Bensignor, chief market strategist of Dahlman Rose.
Spot silver rose 0.9 percent to $36.36 an ounce, just a few cents away from its 31-year high of $36.70 last reached in early March. Fears of fiat currency depreciation have powered gold to record highs. The metal has benefited tremendously since last November, when the Fed announced its plan to buy $600 billion of long-dated US Treasury bonds to boost growth.
"There is an increasing anxiety about how central banks around the world are treating their currencies," Dailey said. "On any dips of size, there is a voracious appetite of physical gold." However, investor appetite has waned, which was reflected by a drop in bullion holdings in the world's largest gold exchange-traded fund, the SPDR Gold Trust, which witnessed its largest one-day outflow since late January.
Gold has risen nearly 10 percent since late January, when unrest was first reported in Tunisia and later spilled into Egypt, Libya and across the Arab world. Platinum group metals were under pressure as demand for autocatalyst took a hit due to Japan's massive quake nearly two weeks ago. Major automakers including Toyota and Honda have yet to resume full production due to a shortage of parts and workers. Spot platinum eased 0.2 percent at $1,737.99 an ounce, while palladium lost 1.2 percent to $736.