Gold fell back toward $1,400 an ounce on Tuesday, breaking a six-session rally, as turmoil in Libya prompted bullion investors to take profits and as sharp losses in equities and other commodities markets prompted margin selling.
Bullion declined as world stocks fell sharply on the revolt in Libya which lifted crude prices to 30-month highs and rekindled fears of inflation and slower global growth if the unrest lingers. Agricultural commodities led by grains also fell broadly.
Investors also swapped riskier assets for safe-haven U.S. Treasury bonds, whose prices rose on Tuesday. Gold has been used as a speculative play as traders are betting rising political tensions across the Arab world will benefit gold.
Libya is a political situation but it's not necessarily one that's going to spill over. Until there are additional signs of it spreading beyond Libya to other areas, gold is going to take a breather here, Frank McGhee, head precious metals trader of Integrated Brokerage Services.
Bullion gained 1.3 percent on Monday, hitting a seven-week high as violence flared in north Africa and the Middle East, raising interest in the precious metal as a haven from risk.
Spot gold slipped 0.4 percent to $1,399.85 an ounce by 2:06 p.m. EST (1906 GMT), having earlier fallen as low as $1,392.54.
U.S. gold futures for April delivery settled at $1,401.10, up $12.50 from Friday's close, with volume about 15 percent above its 30-day norm. Gold futures' gains were largely due to pent-up demand as U.S. markets were shut on Monday for the President's Day holiday.
Silver came under pressure in line with other industrial commodities, falling by as much as 4.3 percent to a low of $32.39 an ounce, as investors closed positions following a three-day rally that lifted prices by nearly 4 percent.
U.S. silver volume totaled 170,000 lots, one of its highest turnover in the past four months, as traders returned after the market was shut Monday.
Silver lost 2.3 percent to $33.09, having earlier hit its highest since early 1980 at $34.30 an ounce, driven by limited supplies for near-term delivery and the prospect for rising demand as the wider economy recovers.
The gold-silver ratio, which shows how many ounces of silver can buy one ounce of gold, rose to around 42 from Monday's 13-year low near 41.
Growing unrest in the Middle East had fueled six straight days of rising gold prices through Monday. A surge in the dollar earlier in the day pulled prices back from seven-week highs, but they have since recovered much of their early losses.
Libya's Muammar Gaddafi vowed to die in Libya as a martyr in an angry television address, as rebel troops said eastern regions had broken free from his rule in a burgeoning revolt.
Gold is approaching key resistance in the $1,410-1,425 area, and a break above that would likely signal a stronger safe haven bid across global assets, Barclays Capital said.
Technical analysts are also monitoring a possible relative strength index divergence. RSI shows bullion is approaching the traditionally overbought level at 70, and a falling RSI when gold prices are rising could trigger a sell signal.
ALL-TIME HIGH EYED
Gold is now just 2 percent below December's record high of $1,430.95 an ounce as economic uncertainty and lingering concerns about sovereign debt provided underlying support.
Geopolitical tensions in the MENA region continue to fester, keeping risk aversion elevated (as evident in the poor performance of equities across the globe) and enhancing the appeal of safe-haven assets, Standard Bank said in a note.
In addition, the surge in oil prices is keeping fears of rising global inflation alive.
Platinum group metals also fell sharply. Palladium dropped 6 percent to $802.97 for its biggest one-day loss since May, while platinum lost 3.3 percent to $1,786.50.