Gold was set to fall for a fourth consecutive session on Tuesday as signs of monetary tightening by central banks prompted selling, but the metal was underpinned by credit downgrades in Portugal and Greece and disappointing US consumer confidence.
Bullion's failure to capitalise on new record highs on recent strong volume suggested some investors are sceptical when central banks are about to rein in money supply to prevent inflation.
"In the short term, any rhetoric on money tightening could certainly cause some anxiety, resulting in gold prices correcting a bit, but I continue to see a significant underlying bid in gold as dips are being bought in the physical market," said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.
Spot gold dropped 0.2 percent to $1,416.40 an ounce by 1:17 p.m. EDT (1717 GMT), having earlier fallen as low as $1,410.85. US gold futures for April delivery lost 0.2 percent to $1,416.60. COMEX gold futures were one of the most actively trading commodity markets, with volume already topped 210,000 lots and set for one of the heaviest trading days in the last two months.
Growing expectations US and eurozone monetary policy may tighten have weighed on gold prices, after Western air strikes on Libya and political unrest across the Middle East and North Africa pushed gold to a record $1,447.40 an ounce last week.
Investment interest in products such as precious metals exchange-traded funds has been soft this quarter, with holdings of the largest gold ETF, New York's SPDR Gold Trust, on track for the biggest quarterly decline since the fund's launch. Holdings of the largest silver ETF, the iShares Silver Trust, are on track for a small rise, however, recovering after posting their biggest ever monthly outflow in January. Silver slipped 0.5 percent to $36.94 an ounce, underperforming gold in its second straight session of losses. Platinum dropped 0.5 percent to $1,736.49 an ounce, while palladium gained 1.1 percent to $749.97.