Gold retreated in Europe on Thursday as a drop in oil prices sparked some profit-taking, but worries over euro zone debt after a Moody's downgrade of Spain and ongoing unrest in Libya kept the metal firmly underpinned.
Oil's rise to 2-1/2 year highs late last month fueled fears that soaring energy costs could damage the economic recovery, knocking stock markets lower and supporting interest in perceived safe-havens like Treasuries, the Swiss franc and gold.
Falling crude prices and gains in the dollar are prompting some investors to cash in gains after last week's rally to a record $1,444.40. Oil fell by more than $1 as the dollar index rallied amid fresh worries about the euro zone's recovery.
"It particularly seems to happen that when gold hits new highs, there is a chunk of profit taking, and it does lose momentum, but that doesn't mean we are not going to regain new highs," said Societe Generale analyst David Wilson.
"Just the fact that we are going to increasingly see more signs of inflationary pressures globally should be supportive for gold," he said.
Spot gold was bid at $1,419.25 an ounce at 1222 GMT, against $1,428.79 late in New York on Wednesday. U.S. gold futures for April delivery fell $10.20 to $1,419.40.
Prices remained firmly underpinned by ongoing violence in Libya. Observers are worried the unrest that began in Egypt and Tunisia earlier this year could continue to spread across North Africa and the Middle East.
NATO and the European Union begin talks on Thursday on a possible "no-fly" zone over Libya after some of the fiercest fighting of the three-week-old uprising against leader Muammar Gaddafi.
Libyan tanks fired on rebel positions around the oil port of Ras Lanuf and warplanes hit another oil hub further east on Thursday as Muammar Gaddafi carried counter-attacks deeper into the insurgent heartland.
Also supporting gold was a re-emergence of concerns over euro zone sovereign risk after rating agency Moody's cut its ratings on Spain and Greece, and ahead of a summit of euro zone leaders on Friday.
A group of 17 euro zone leaders will meet to take the next cautious steps in their year-long effort to quell the region's debt crisis, though the meeting is unlikely to produce a breakthrough.
"Many clients are becoming increasingly wary about the European debt situation, and more rather than fewer believe that markets will be disappointed by the European meetings this month," said UBS in a note.
"There is growing acceptance that Europe's debt crisis will get worse before it gets better, as our fixed income strategists maintain, and that this will be gold-positive."
Asian buyers were reluctant to make significant fresh purchases as prices held near record highs, with buying in Singapore well below pre-Lunar New Year levels.
"It doesn't make sense for physical buyers to buy now," said a Hong Kong-based dealer, "They will probably buy on dips when prices go back toward $1,400 or below. Only investors with a very long-term view would buy at this point."
Asia is by far the largest consumer gold market in the world, with China and India accounting for the largest chunk of gold demand and Vietnam, Thailand and India also buying significant quantities of gold.
Among other precious metals, silver fell to $35.21 an ounce from $36.05, tracking gold. The iShares Silver Trust, the world's largest silver exchange-traded fund, said its holdings hit a record high at 10,974.06 tonnes on March 9.
Platinum was at $1,777.74 an ounce against $1,796.49, while palladium was at $763.22 against $776.97.