Gold steadied near seven-week highs on Thursday, as investor fears over inflation stemming from the spike in crude oil were partially offset by pockets of profit-taking after the market's 6 percent rise this month.
As many as 1,000 people may have been killed in the unrest in Libya, where on Wednesday, thousands celebrated as the east broke free of the control of Mummar Gaddafi, who has vowed to crush the revolt.
Worsening violence in Libya, Africa's third-largest producer of oil, sent crude futures to their highest in over two years, around $120 a barrel, a level which Deutsche Bank called a key threat to global growth.
Spot gold was up 0.1 percent at $1,413.10 an ounce by 7:12 a.m. EST, having risen by almost 8 percent since January 28, when the Egyptian army rolled into Cairo as protesters demanded that former president Hosni Mubarak step down.
U.S. April gold futures were flat at $1,413.80.
The support we've seen for gold, given what is happening in the Middle East, is obviously to do with the political issues, but I think it's got more to do with the rising inflation expectations on the back of the rapidly increasing oil price, said Standard Bank analyst Walter de Wet.
Given that we've got negative real interest rates once again and higher oil prices ... we think there's still a couple of bucks in there, he said, of gold's potential to gain further.
Investors often buy gold as a means of protecting their portfolios against rising inflation expectations as gold rises in line with other asset prices, as opposed to bonds where returns are eroded or currencies, which lose purchasing power.
Rising inflation eventually leads to rising interest rates, which ultimately can prove negative for gold, which bears no yield, but when inflation threatens growth, bullion can often offer investors the hedge they need.
Brent crude futures hit their highest since August 2008, fueled by concern that the bloodshed in Libya that has cut more than a quarter of its oil output could spread to other producers including top exporter Saudi Arabia.
Tension over the unrest across North Africa and the Middle East boosted other perceived safe-haven assets such as the Swiss franc, which hit a record against the dollar or Treasury note futures, which hit their highest since February 2.
There is no reason why we can't break through the recent high around $1,416 and head toward $1,420 if the unrest continues in Libya, said Darren Heathcote, head of trading at Investec Australia.
Of course if it spreads even further in field or becomes more violent, gold will benefit further as a safe haven.
Investor interest in gold has not translated into inflows into major exchange-traded products, such as the SPDR gold trust, or ETF Securities' gold funds, since the late January, when protests intensified in Egypt against the 30-year rule of former president Hosni Mubarak.
Yet investors have increased their holdings of COMEX gold futures this month and until the price broke above $1,400 an ounce this week, dealers had reported fairly healthy consumer buying.
The 5.6 percent price rise in the last four weeks has attracted sales of scrap into the market, which has acted a something of a headwind for the spot gold price, dealers said.
Silver, which is around its highest in 31 years, eased on Thursday, in line with a decline in industrial metals.
Adding to the modest pressure on silver was a decline in import of the metal in January by top commodity consumer China, where it is used, among other applications, in the country's growing solar energy sector.
Spot silver was last down 0.5 percent at $33.32 having touched 31-year peaks above $34 on Tuesday.
Reflecting healthy investor interest in silver, where the futures market shows near-term prices are now above those for later delivery, holdings in the world's largest silver-backed ETF, the iShares Silver Trust, rose to one-month highs.
Platinum fell 0.5 percent to $1,773.24 an ounce, while palladium was down 1.4 percent at $765.72.