Gold prices held just below the previous session's record high in Europe on Wednesday, as the threat that violence in the Middle East and North Africa will spread supported interest in the metal as a haven from risk.
While the precious metal's rally lost momentum as some investors cashed in the previous session's gains, fresh unrest in the region is likely to reignite its run higher, analysts said.
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Spot gold was bid at $1,430.30 an ounce at 1031 GMT against $1,433.70 late in New York on Tuesday, having peaked that day at an all-time high of $1,434.65. U.S. gold futures for April delivery rose 10 cents to $1,431.30.
"Ever since things started to happen in the Middle East, you have seen this recovery from the mid-$1,300s back to record highs... driven by safe-haven flows," said RBS Global Banking & Markets analyst Daniel Major. "
He said the resilience of gold's move higher would depend on it breaking substantially above its previous trading range.
"What will decide that will be how things pan out in the Middle East," he said. "Should we see a calming of the political situation there, there is a risk to the downside, but should we see things escalate and we break above the level we are at at the moment, there is the potential for more to come."
Gold prices rallied to a record $1,435.65 an ounce late on Tuesday, while silver prices reached their strongest in 31 years, a high they surpassed early on Wednesday.
Gold rose 6% in February, its biggest one-month climb since August, largely on the back of unrest that unseated leaders in Tunisia and Egypt before spreading to Libya, Bahrain, Yemen, Oman and elsewhere. The region continues to simmer.
Forces loyal to Libyan leader Muammar Gaddafi have recaptured a town in the country's mostly rebel-held east, rebel military officers said on Wednesday, in an attempt to break the momentum of a popular rebellion against his 41-year-old rule.
Arab League foreign ministers meet later at an extraordinary session in Cairo and are expected to reinforce their condemnation of Gaddafi.
Meanwhile a Suez Canal official said two U.S. amphibious assault ships, the Kearsarge and the Ponce, had entered the canal on Wednesday on their way to the Mediterranean.
RISK APPETITE WANES
Ongoing violence in the region cooled appetite for assets seen as higher risk, like stocks, and boosted so-called safe havens like U.S. Treasuries, German government bonds and the Swiss franc.
It also fuelled stellar gains in oil. Brent crude held above $115 a barrel on Wednesday after settling at a near 2-1/2 year high, while U.S. crude edged above $100 a barrel.
Rising oil prices are set to support gold, analysts said, if they look likely to curb global growth. "They could very well impact (growth in) Europe, the United States as well, and indeed China," said VM Group analyst Carl Firman.
"That will give rise to uncertainty, it will lower demand predictions for, for instance, copper, and where it knocks industrial metals and equities, gold will probably benefit."
Elsewhere silver rose to a peak of $34.74 an ounce, its strongest level since early 1980, before edging back to $34.46 an ounce against $34.66.
Holdings in the world's largest silver exchange-traded fund, the iShares Silver Trust, rose to 10,693.68 tonnes on March 1, their highest since Jan. 14.
The trust reported a slight recovery in its holdings last month after they posted their biggest ever one-month fall in January.
Meanwhile platinum was at $1,831.50 an ounce against $1,838.49, while palladium was at $811.97 versus $814.47.