Gold was steady on Tuesday as investors continued to track moves in the US dollar, with the metal remaining within striking distance of the key $US1000-an-ounce mark.
Bullion touched $US988.50 on Monday, the highest level since February 24, as strong US data reduced safe-haven demand for the US dollar pushing it to its lowest level this year against the euro and a basket of currencies.
Oil, which hit a near seven-month high on Monday, also reignited inflation fears, helping to lift gold.
"Oil is adding to what is already a potentially inflationary picture, but the dollar is ultimately the main driver at the moment," said Darren Heathcote, head of trading at Investec Australia.
He said he expected the dollar to continue to weaken as risk appetite returns.
Gold was at $US976.95, up 0.3 per cent from New York's notional close of $US973.95.
US gold futures for August delivery were at $US978.10 per ounce, down 0.2 per cent from the previous day's settlement.
A softer dollar typically boosts gold, both because bullion can be bought as an alternative to the US currency and because its weakness makes dollar-priced commodities cheaper for non-US buyers.
The two assets had given up their traditional relationship as both reacted primarily to risk aversion. But as optimism grows that the worst of the economic downturn is over, their usual trading dynamic has returned.
The Reuters-Jefferies CRB index, a global commodities benchmark, marked its biggest one-day gain in two months at 3 per cent on Monday.
In another sign of renewed investor interest in gold, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings hit a record 1134.03 tonnes as of June 1, up 15.27 tonnes or 1.4 per cent from the previous business day.
