Gold prices eased from a record above $1,600 an ounce early on Tuesday and were on track to snap an unprecedented 11-day rally as improved risk sentiment sapped some of the precious metal's safe-haven demand. Assets such as equities and the euro raced higher, stalling gold's upside momentum and dragging prices briefly below $1,600.
Still, investors continued to favour the metal due to heightened concerns that the debt crisis engulfing Greece may ensnare Italy and Spain, and as time grew short for raising the US debt ceiling.
"People are just stepping back ... we are going to end the week with the same concerns that we came into the week with, and people realise that," said Zachary Oxman, managing director with TrendMax in Encinitas, California, citing the increased buy-orders that flowed in when prices dipped below $1,600.
Physical demand rose, with investors looking to hoard gold and cash as a perfect storm brews in equity and credit markets.
Data published by EPFR Global, which tracks flows in and out of funds, showed a thirst for gold helped drive the biggest inflows into commodities funds for 14 weeks in the week to July 15.
Holdings of precious-metals-backed exchange-traded funds rose on Monday, with the amount of gold held by the largest gold ETF, New York's SPDR Gold Trust, adding 13.3 tonnes after a 10-tonne inflow the previous day.
Spot gold hit a new record at $1,609.51 an ounce, before easing to $1,601.11 as of 1626 GMT. It is up 13 percent so far this year amid concerns over the eurozone debt crisis and the potential for further US quantitative easing.
In New York, gold futures for August delivery were off 60 cents at $1,601.80 an ounce, after hitting their own all-time peak of $1,610.70.
The largest silver-backed ETF, the iShares Silver Trust, said its holdings rose 39.4 tonnes on Monday.
The gold:silver ratio - the amount of silver needed to buy an ounce of gold - dipped under 40 this week for the first time since early May as silver outperformed gold in a rising market, a common phenomenon given its lower liquidity.
Silver was bid at $40.29 an ounce against $40.51. US silver futures were off 1.7 cents at $40.325. Spot platinum was bid at $1,770.09 an ounce versus $1,769.98, while spot palladium was at $795.97 an ounce against $792.57.