Despite European Central Bank chairman Jean-Claude Trichet's statement Thursday that "strong vigilance" against inflation was required and market expectations of a hike in interest rates as early as July, the euro slipped against the greenback, weighing on commodities.
At 0536 GMT, the euro slipped to $1.4497 after opening at $1.4511.
Gold, which is viewed as a hedge against inflation, was trading in a tight range through the morning. Spot gold was trading at $1,541.20 a troy ounce, down $3.20 from the previous close.
"Gold seems to be stuck in a range, but there is also a little bit of profit-taking going on," said a Hong Kong-based trader.
The yellow metal opened higher in the morning after Trichet's comments and as market participants anticipate a rate hike in July.
As higher interest rates tend to support a currency's value, a stronger euro would have made dollar-denominated commodities attractive to buyers using other currencies.
However, a weaker euro this morning dragged precious metals down.
Precious metal prices have scaled new highs this year aided by a stream of weak economic indicators and ongoing concerns over Greek's sovereign debt crisis. Besides, a loose money policy in the U.S. under the second round of stimulus, also known as quantitative easing, has supported precious metal prices.
Earlier this week, Federal Reserve Chairman Ben Bernanke didn't give any indication of a new round of quantitative easing. The last round winds down this month.
"We are all waiting to see if the Fed announces QE3," said another Hong Kong-based trader, who expects gold prices to trade between $1,530/oz and $1,550/oz until the end of July.
Research consultancy Capital Economics expects gold prices to "head markedly higher" to $2,000/oz in 2012 with or without another round of stimulus from the U.S. Federal Reserve, mainly due to worries about the health of the global economy and sovereign debt.
But traders are unsure of gold prices moving above $1,550/oz as the market lacks triggers to propel prices above that key level.
Silver, like gold, remained rangebound through the day, with some traders and analysts wary of its volatility.
Standard Bank said silver remains volatile and could find support on dips towards its 100-day moving average at $36.12/oz.
Spot silver was trading at $37.35/oz, down 22 cents from the previous close. Platinum was flat at $1,839/oz and palladium was up $1 at $815/oz For the latest updates PRESS CTR + D or visit Stock Market news Today
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