Wholesale gold prices hovered in a tight range just below $1,780 an ounce for most of Tuesday morning in London, just below a new 2012 spot market high touched yesterday following comments from US Federal Reserve policymakers.
Silver prices traded just below $35 per ounce, close to seven-month highs, while stocks and the euro ticked higher despite warnings that Spain is underestimating the amount of recapitalization its banks need.
Commodities were broadly flat, with copper showing some strength, while major government bond prices fell.
A day earlier, dollar gold prices touched a new 2012 high at $1,7971 per ounce during Monday's US session, while the gold price in euros set a fresh all-time record at €44,583 per kilo (€1,386 per ounce).
"The gains were prompted by Fed President Evans' comments that the quantitative easing measures adopted [by the Fed last month] did not go far enough," reckon analysts at Commerzbank.
"On top of this, Fed Chairman Bernanke expressed concern about weak economic growth, making additional bond purchases a possibility... In a climate of ultra-loose monetary policies and the relentless Eurozone debt crisis, demand for gold as a store of value and alternative currency is likely to remain strong."
"We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio," say analysts Nicholas Johnson and Mihir Worah at world's largest bond fund Pimco.
"The supply of gold is constrained, and we see demand increasing consistent with global economic growth on a per capita basis. Regarding inflation in particular, we feel that the Federal Reserve's decision to begin a third round of quantitative easing makes gold even more attractive."
Holdings of gold backing the world's largest gold ETF, SPDR Gold Shares (GLD), rose by nearly two tonnes to 1,322.6 tonnes yesterday, the first day of the new quarter, though they remain 0.7% off last Tuesday's all-time high.
Investment bank UBS meantime has said it expects a boost in physical gold trading volumes when China returns from a week-long holiday next week.
Spain's banks could need up to €105 billion to absorb potential losses on their loans, according to ratings agency Moody's. That's more than last Friday's €60 billion estimate and more than the €100 billion credit line Spain agreed with other euro members in June.
"The recapitalization amounts published by Spain are below what we estimate are needed for Spanish banks to maintain stability in our adverse and highly adverse scenarios," say Moody's analysts Maria Jose Mori and Alberto Postigo.
"If market participants are skeptical about the stress test, negative sentiment could undercut the government's efforts to fully restore confidence in the solvency of Spanish banks."