Gold retreated from record highs on Monday as investors took profits after U.S. crude oil prices sharply pulled back on speculation that Libyan leader Muammar Gaddafi was seeking a deal to secure a safe exit from the country.
Silver gained 1.5 percent, having earlier touching a 31-year high on strong physical demand and short-term supply tightness. Silver's outperforming over bullion sent the gold-silver ratio below a key psychological level.
"It's a bit of profit-taking right now. The Libya situation is so fragile at the moment, and there's a lot of speculation Gaddafi will leave, or whether his forces are retreating," said Phillip Streible, senior market strategist with MF Global's Lind Waldock.
Oil prices fell sharply from earlier peaks, with traders and brokers citing rumors of a deal involving Gaddafi leaving Libya. The rumors appeared linked to an unsourced report in an Arabic-language newspaper, trade sources said, but this could not immediately be verified.
Earlier in the day, Reuters reported that a leading member of Libya's ruling establishment had appealed to rebel leaders for dialogue, in the clearest sign yet Gaddafi may be ready to compromise with opponents challenging his rule.
Spot gold hit a record $1,444.40 an ounce as violence flared in Libya and after a downgrade of Greece's credit rating by Moody's reignited euro zone sovereign debt worries, which helped fuel a bullion rally last year.
Gold rose 35 cents to $1,432.20 an ounce by 1 p.m. EST, while U.S. gold futures for April delivery rose $3.80 an ounce to $1,432.60, largely tracking oil's pullback. Gold prices in London had risen further after U.S. futures settled on Friday, resulting in a sharper gain in U.S. prices on Monday as they caught up.
Silver gained 1.2 percent to $36.02 an ounce. The metal rose to its highest since early 1980 in earlier trade at $36.70 an ounce.
The gold/silver ratio fell below 40:1 for the first time since February 1998, the weakest since billionaire Warren Buffett bought 130 million ounces of silver between 1997 and 1998.
Gold was dragged lower as the increase in the price of oil weighed on both European and U.S. stocks, and as the euro fell against the dollar after having earlier hit a four-month high as expectations of a euro zone interest rate hike next month faded.
RISING TENSIONS UNDERPIN
Violence across North Africa and the Middle East has boosted gold's appeal as a protection from risk in recent weeks.
"The geopolitical risk premium is clearly reflected in the gold price," said Robin Bhar, an analyst at Credit Agricole. "The violence (has) intensified which does prompt suggestions of civil war in Libya."
Last week, bullion notched its fifth consecutive weekly gain on fears that Libya's escalating unrest could spread across the Arab world.
Saudi security forces detained at least 22 minority Shiites who protested last week against discrimination, activists said on Sunday, as the kingdom tried to keep the wave of Arab unrest outside its borders.
Platinum dropped 1.6 percent to $1,811.49 an ounce, while palladium lost 2.6 percent to $788.47.
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