Gold dropped below $1,430 an ounce on Tuesday, falling further away from the previous day's record high as easing crude oil prices on expectations of higher Opec production dragged bullion and other commodities lower. Spot gold fell 0.3 percent to $1,425.80 an ounce by 12:02 pm EST (1702 GMT). US gold futures for April delivery slipped $6.40 to $1,428.10.
Gold was fixed at $1,426.25 an ounce in London, down $8.75. In the last year, the correlation between gold and oil has been erratic but in the last few trading sessions the positive link between the commodities have strengthened. The correlation is expected to remain strong in the near term as tension escalate in Libya, with government forces attacking rebels with rockets, tanks and warplanes, intensifying their offensive to crush the revolt against Muammar Gaddafi.
Gold hit a record $1,444.40 an ounce and oil rallied on Monday but both oil and gold later retreated on speculation that Gaddafi might step down. Oil prices can be seen as a leading indicator of risk perceptions in the oil-rich Middle East and North Africa region, so falling prices tend to suggest less need to hold gold as a haven from risk. "Despite the escalation of the unrest in Libya, gold has been struggling to gain a foothold above the old highs with some investors seemingly happy to lock in profit at these levels," said Saxo Bank analyst Ole Hansen.
Adding to the pressure on gold was a rise in the dollar against the euro, which fell as investors debated what the outlook for higher eurozone interest rates might mean for the region's more indebted nations. Concerns over eurozone sovereign debt were a major factor pushing gold prices higher last year. Investors poured into precious metals investment products to seek a safe haven amid political and economic uncertainty.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, rose for the first time since February 1 on Monday, by 6.7 tonnes. Meanwhile holdings of the largest silver ETF, the iShares Silver Trust, rose to two-month highs of 10,898.14 tonnes, climbing 103.25 tonnes, their largest one-day rise since February 23. Silver fell 0.3 percent to $35.75 an ounce, while platinum lost 0.7 percent at $1,802.99 an ounce, and palladium dipped 0.1 percent to $785.22.