Comex gold fell in dull trade on Tuesday but held above the previous day's seven-month low as the dollar retreated from a 15-day high against the euro set overnight.
Gold tracked the Europe's moves, traders said.
Barring any surprises from the Middle East and the US war on terror that would rekindle safe-haven buying, they said they would take their gold cues from the currency markets.
"We're only down a couple of dollars.
This is more daily noise than anything else," said Bernard Hunter, a director at bullion dealer ScotiaMocatta in Toronto. "The outlook hasn't really changed in terms of the US dollar, in terms of the expectation for US interest rates. After a big move you are seeing a period of consolidation."
Benchmark June gold settled $1.50 lower at $377.20 an ounce, trading from $380.20 to $374.60. On Monday it bottomed at $371.30, it's cheapest since October 17, 2003. Estimated turnover was a moderate 50,000 contract.
Spot gold fell to $376.80/6.55 from the previous close at $378.40/9.15. London's afternoon fix was at $375.25. "During London time when the euro fell, gold followed. Now I think the market has mixed feelings about gold," said a New York bullion trader.
"They like the way it held that $372 area yesterday and are just looking for a little bit of direction."
The euro fell to $1.1790 overnight before recovering to higher ground at $1.1876/79 after gold closed. Investors have streamed back into the dollar to reap the higher yields resulting from bond market speculation that the Federal Reserve is about to increase interest rates from 45-year lows to prevent the economy from overheating.
The case for holding gold and other dollar-priced commodities weakened in the rising US interest rate environment because of the increased opportunity cost of holding hard assets, which do not carry a yield.
Physical demand from the Middle East and Asia has been strong since gold fell below $400 an ounce. Price-sensitive bullion buyers stood aside when gold was near a 15-year high at $433 an ounce last month.
Dealers said on Tuesday that Asian premium for gold bars are at there highest this year as jewellery makers capitalise on falling prices to build up stocks. July silver fell 24.2 cents to settle at $5.523 an ounce, trading from $5.83 to $5.50.
Spot silver was quoted $5.51/54, down from $5.73/76 late on Monday. Bullion dealers fixed silvers price at $5.67 an ounce. "Just continued fund selling in silver, all on the floor," said another precious metals dealer at a commercial bank.
Nymex July platinum went up $16.10 to $779.50 an ounce. Spot platinum traded at $780.00/785.00. June palladium slipped 70 cents to $235.30. Spot was indicated at $232.50/238.50.