Gold edged lower in volatile trade on Tuesday after commodity markets plunged overnight and investors booked profits from a recent rally sparked by the U.S. Federal Reserve's aggressive round of stimulus efforts.
But worries that central bank money-printing will ultimately stoke inflation could prompt more buying in gold, which rallied to its highest in nearly seven months last week after the Fed launched a third round of bond buying.
Gold dropped $5.26 an ounce to $1,755.69, with dealers also noting sales of bullion scraps in the physical market. Oil, metals and grains market tumbled on Monday on worries about the demand outlook for those commodities.
"I would simply call it profit taking, if you want. But I think it's within the range of a solid performance that we've seen over the last two weeks or even a month. So nothing unusual," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.
"So from that angle, the view doesn't change. $1,950 remains the three-month target on the back of investors searching for real assets, the need for real assets. The risk for further dollar weakness is clearly here a supportive factor."
Gold hit a record of about $1,920 in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe.
A Reuters poll showed the Fed will buy a total of $600 billion of bonds under its new stimulus programme, known as QE3, and will look for a U.S. unemployment rate of 7 percent before it halts the programme.
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U.S. gold futures for December delivery fell $12.30 an ounce to $1,758.30 in thin trade as investors cashed in, but analysts said the uptrend for both cash and futures was intact.
"I think $1,730, levels where the market was before the Fed, will serve as a firm support with markets eyeing testing last year's peak above $1,900 before the end of the year," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.
Silver tracked gold lower, falling from multi-month lows hit last week. Platinum also dropped, partly after the suspensions and closures of Japanese car plants in China following a territorial dispute between the two countries.
"There's selling of gold across Asia and demand is not great. The situation in China is having a little bit of impact on platinum but the price has also risen too much," said a dealer in Hong Kong, who offered gold bars at premiums of up to 50 cents above the spot price.
China's worst outbreak of anti-Japan sentiment in decades has led to protests and attacks on Japanese companies such as car makers Toyota Motor Corp and Honda Motor Co, forcing them to halt operations.
Platinum is used as an auto catalyst.
In other markets, Asian shares retreated from four-month highs as markets calculated the impact on growth from the Fed's stimulus and eyed whether Spain will request a bailout to ease its fiscal strains.
The dollar index measured against a basket of key currencies stayed near Friday's 6-1/2 month low of 78.601.