Gold surged to a historic high above $910 an ounce, as investors rushed to buy the metal on further weakness in the dollar and expectations of a sharp cut in U.S. interest rates.
But the metal pared gains in afternoon European trade as some investors decided to take profits from a rally that saw prices jumping 50 percent in the past year, including a 15 percent rise in the last 30 days.
Gold's surge on the day also prompted buyers to snap up other precious metals, with platinum hitting a record high before giving up some gains. Silver was quoted below a 27-year peak, while palladium traded off its highest in two months.
It's human nature to buy into a market that is already showing strength. Most fund managers have a herd mentality and they are just attracted to gains. Gold could go higher still, but we don't think this is a right time for buying, said Robin Bhar, metals analyst at UBS Investment Bank.
From a technical perspective, we would obviously need to see a close above $900 that would be construed as a bullish sign. But fundamentally, we are very cautious and would not advocate going long here because positioning is still extreme. There is a risk of $50-$100 dollar correction at any time.
Spot gold jumped as high as $914 an ounce before falling to $906.60/907.30 by 1549 GMT, against $895.70/896.50 in New York late on Friday.
U.S. gold futures touched $915.90 an ounce, surpassing Friday's record high of $900.10. The most active February contract was later quoted at $906.80, up $9.2 an ounce.
Japanese gold futures were closed for a holiday.
If you look at the overall situation, there is a lot of fear about more bad news related to the banking sector. This is one of the main drivers at the moment, said Wolfgang Wrzesniok-Rossbach, head of sales at Germany's Heraeus.
There is some profit-taking from the metal's highs, but no big wave of selling is seen here. Gold is trading in a normal range and is likely to hover in a wide band of $880-$920 in the near term, he said.
DOLLAR SLIDE BOOSTS GOLD
The dollar dropped to record troughs versus the Swiss franc and seven-week lows against the euro and yen as concern that weak U.S. corporate earnings will prompt more interest rate cuts weighed on currency markets.
The Federal Reserve is widely seen cutting its key rate in January by a half-point to 3.75 percent.
Although analysts say that a cut before a January 29-30 meeting is unlikely, expectation of such a move could get a boost if U.S. banks announce big writedowns linked to the troubles in the subprime mortgage market and global credit crunch.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand.
On charts, gold's 14-day relative strength indicator (RSI) rose to 89 from just 47 a month ago. The market views an RSI of 30 or less as oversold and 70 or more as overbought.
In Singapore, physical dealers noted selling from holders who cashed in on gold's gains as well as limited purchases from jewelers at lower levels.
Spot platinum hit record high of $1,590.50 an ounce before falling to $1,575.50/1,580.50, against $1,562/1,566 in New York. Silver rallied to $16.58 an ounce before easing to $16.49/16.54, up from $16.19/16.24. Palladium rose to $380 before falling to $376.50/381.50, versus $375/379.