Gold slipped 1 percent on Tuesday as traders took profits after the previous session's 11-week high and oil prices slid back below $40 a barrel. The weaker dollar and interest in bullion as a haven from risk as violence continues in the Middle East are limiting losses, however. Spot gold was quoted at $868.30/870.30 an ounce at 1035 GMT, down from $877.50 late in New York on Monday. In that session bullion rose to a high of $889.55, its strongest since October 10. "Gold did a lot over Christmas," said Simon Weeks, director of precious metals at the Bank of Nova Scotia. "The situation in the Middle East and Gaza triggered movements in oil and in gold as well, but given the volumes actually seen, the reaction was overdone, and a degree of profit taking has set in." U.S. gold futures for February delivery fell $4.60 to $870.70. However, the weak pound took spot gold to a new record high in sterling terms of 611.97 pounds, according to Reuters data, up from 603.72 late on Monday. Oil prices shed some 1 percent as fears over falling demand in the current recessionary environment overshadowed the situation in the Middle East. [ID:nSIN393322] Losses in gold were limited by weakness in the dollar, which typically boosts bullion's appeal as a currency hedge. The dollar softened as traders trimmed long positions in the U.S. currency in the last few trading days of the year. [ID:nLU13017] Currency traders are awaiting U.S. data due out later in the session, including December consumer confidence at 1500 GMT and Chicago PMI numbers at 1445 GMT, to give fresh direction to the markets. Israel rejected any truce with Hamas Islamists on Tuesday, saying it was prepared for "long weeks of action", as the fiercest air offensive in the Gaza Strip entered a fourth day. [ID:nLU691622] "Increased geopolitical risk could redirect tactical investment flows back into precious metals," said Standard Bank analyst Manqoba Madinane. Interest in gold-backed exchange-traded funds remains firm, meanwhile. Holdings of the world's largest bullion-backed ETF, New York's SPDR Gold Trust rose nearly 5 tonnes to a record 780.23 tonnes on Dec. 29, the trust said. [ID:nLU90621] Among other precious metals, spot silver tracked gold lower, slipping to $10.72/10.80 an ounce from $10.85 late in New York on Monday, when it touched a near two-week high of $11.23. "Given the increased demand for safe-haven asset types, we anticipate silver will look to test the $11.60-12.40 area soon," said James Moore, an analyst at TheBullionDesk.com. Platinum and palladium both eased after the last session's gains and continue to suffer from fears over the outlook for the car market. Spot platinum slid to $905/910 an ounce from $915.50, while palladium eased to $182.50/187.50 an ounce from $185.50. The U.S. government expanded its bailout of the auto industry late on Monday, saying it will pump $5 billion into General Motors' auto and mortgage financing arm GMAC, which is considered crucial to the company's survival. [ID:nSP355627] Auto manufacturers are major consumers of platinum group metals, accounting for around half of global demand. (Reporting by Jan Harvey; Editing by Anthony Barker)

Source