LONDON: Gold fell on Tuesday from record highs above $1,570 an ounce the previous day, as the dollar rose and as safe-haven buying of the metal lost some momentum following the death of al Qaeda leader Osama bin Laden.
Spot silver also came under selling pressure after hitting a near two-week low of $42.58 an ounce on Monday, when the precious industrial metal saw its biggest one-day drop in 29 months.
Spot gold was bid at $1,537.79 an ounce by 1409 GMT, having hit a record $1,575.79 an ounce on Monday and compared with $1,544.30 late in New York on Monday. COMEX gold futures were down 1.2 percent at $1,538.50 an ounce.
"The dollar is stronger and gold is overstretched at these levels. There is some profit-taking going on," said Walter de Wet, analyst at Standard Bank.
The dollar held above three-year lows as a build-up of bets to sell it based on loose U.S. monetary policy ran out of steam, though gains against the euro were capped by good demand on dips for the shared currency.
A higher U.S. currency makes metals priced in dollars cheaper for holders of other currencies.
"The U.S. dollar is significant in the price development of the precious metals," said Quantitative Commodity Research analyst Peter Fertig.
"With the divergence of monetary policy in the U.S. and the euro zone in particular, I expect the dollar is going to weaken further in the medium term," he said, referring to market expectations for U.S. rates to remain unchanged and euro zone rates to steadily rise.
Low U.S. rates allow gold to compete more effectively against other asset classes, as it bears to yield of its own and draws strength from weakness in the U.S. currency.
The death of bin Laden accelerated spot gold's drop to a session low of $1,534.15 from a record high of $1,575.79 on
Monday, although Fertig said the impact of the al Qaeda leader's death would be limited.
"I don't expect this to be a lasting factor, terrorism remains a threat to Western society and for that reason, there is no convincing argument to abandon gold as a safe-haven if one has bought it as a safe-haven against terrorism," he said.
Gold might have lost some safe-haven appeal after bin Laden's death, but the bullish trend is intact as fundamentals of the market remain supportive, said traders and analysts.
Concern over rising global inflation and ongoing unrest in the Middle East and North Africa may also continue to attract investors to bullion.
Flows of metal into the world's major exchange-traded funds tracked by Reuters staged their second monthly increase in April, rising 2.35 million ounces, or 3.74 percent, bringing the net flow for 2011 into positive territory, up 77,932.5 ounces.
Last week also marked the eighth consecutive week of net inflows into the gold ETFs.
Market participants are waiting for the key U.S. non-farm payrolls data due on Friday, which should offer evidence of the ability of the economy to generate jobs, something which the Federal Reserve has flagged as a key concern.
Silver fell 1.2 percent to $43.36 an ounce, having staged its biggest one-day fall in almost 2-1/2 years on Monday to hit two-week lows.
The CME Group Inc raised margin requirements on COMEX silver for the third time since last Monday. It increased maintenance margins for speculators by 11.6 percent to $12,000 per contract from $10,750 effective Tuesday, May 3.
Silver is still one of the top-performing commodities of the year, having risen by almost 45 percent so far in 2011.
But investors remained wary of a market in almost chronic surplus and a highly volatile price.
Some of this discontent has been reflected in the futures market, where COMEX speculators cut their long position by the biggest amount in two years last week. while ETF holdings of silver fell nearly 4 million ounces.
Platinum was steady at $1,855.74 an ounce, while palladium rose 0.5 percent to $774.00.