Gold steadied around its highest level in nearly six months on Tuesday, boosted by the prospect of further liquidity injections from the US Federal Reserve, which kept the dollar near two-month lows versus the euro.
Fed chairman Ben Bernanke in a speech last week suggested the central bank may resort to using more unusual policy measure to keep interest rates low, which has lifted growth-dependent assets such as commodities and stocks.
Investors hold more gold through exchange-traded funds than at any time in the past, after hefty inflows of metal into these products in August.
The likelihood of the European Central Bank unveiling a plan on Thursday to definitively reverse the debt crisis that has plunged the euro zone into recession gave the single European currency a boost, driving gold priced in euros to its highest level this year.
Analysts said the scope for disappointment from either the ECB or the Fed would likely limit gains in gold for now.
Spot gold was up 0.2% at USD 1,694.39 an ounce by 1230 GMT.
"For a sustained rally past $1,700, you do need to see definite action from the ECB and a substantially lower dollar," Andrey Kryuchenkov, an analyst at VTB Capital said.
"The fact that the other precious metals are rallying as well and it's not just gold, shows it is macro sentiment that is driving the market at the moment ... All that promise needs to turn into concrete action. And for gold in the long run, it needs any sort of liquidity boost, of balance sheet expansion and for (bond) yields to stay low."
In theory, gold benefits from low borrowing rates as these cut the so-called opportunity cost, or the premium investors forfeit by owning gold rather than a yield- or dividend-bearing asset, of investing in this market.
So far in 2012, gold has gained more than 8%, putting it on track for its twelfth successively yearly rise, but has yet to challenge the high for this year at USD 1,790.30 an ounce.
Much of gold's performance until the end of the year will depend on what steps the Fed takes. Its multi-trillion dollar rounds of bond buying since late 2008 have caused gold to double in value and attracted record investment in the metal.
September is generally a month of strong performance for the gold price. On average, over the last 44 years, gold has gained 2.1% in September, compared with March, historically the weakest month based on percentage gains, where it has averaged a loss of 0.5%.
The Fed meets next week to discuss monetary policy, leaving the ECB's meeting on Thursday in focus. Markets are positioned for bank president Mario Draghi to add more detail to his pledge in late July to do whatever it takes to preserve the euro.
The ECB said at its last meeting it would consider buying the government bonds of the more indebted big economies, such as Spain and Italy to stem the spread of the debt crisis and avoid another full-scale sovereign bailout, following those of Greece, Ireland, Portugal and Cyprus.
The prospect of support for the euro from the ECB has helped keep a pillar of support under the gold price, while tends to weaken when other currencies fall against the US dollar.
Gold priced in euros has touched fresh highs for 2012 this week at 1,346.91 euros an ounce, putting it less than 2% below last year's record high at 1,373.92 euros.
The gold/silver ratio, which shows the number of ounces of silver needed to buy one ounce of gold and acts as a gauge of the relative performance of both metals, fell to its lowest since late April on Tuesday.
The silver price has gained nearly 10% in the last two weeks, compared with a 3.5% rally in gold and was last up 0.3% on the day at USD 32.21 an ounce.
Highlighting how investor appetite for silver has taken off in the last month, speculative holdings of U.S. silver futures staged their largest monthly increase in August since September 2009, according to data from the Commodity Futures Trading Commission last week.
"Even though the much-regarded gold/silver ratio has currently fallen below 53 ... as a result of the sharp increase in the price of silver, we still see price potential for silver," Commerzbank said in a note.
"The silver price should receive additional buoyancy from investment demand above all - both from ETF investors and money managers. We see silver at USD 35 per troy ounce by year's end."
The platinum group metals rose in line with a pickup in other industrial commodities such as crude oil an copper.
Platinum, which rose 8.6% last month after a strike at the South African operations of world number three producer Lonmin turned deadly three weeks ago, was up 0.5% at $1,552.24.
Palladium was up 1.3% on the day at USD 635.72.
