Gold briefly perked up after the open as the dollar tanked following an Iran television report that declared an unknown aircraft may have fired a missile near the southern port city of Dailam, where Iran has a nuclear power plant.
Equity markets initially fell on the news, while crude oil, the euro, and the Swiss franc rose. But Iranian officials settled fears by saying the blast was made by construction workers building a road at the site of a dam at Kosher, near Diatom.
Brokers said market investors were also seen taking their cues from the Europe's movement during Federal Reserve Chairman Alan Greenspan's first day of his semi-annual report on monetary policy to Congress.
The dollar traded higher against the euro after Greenspan indicated the US central bank will continue to gradually raise interest rates, as the US economic expansion had gathered steam and that inflation remained under control.
The Fed chairman also said that while the US current account deficit may be a problem in the longer term if it remains high, the US probably has the flexibility to "diffuse" the deficit "without undue negative economic effects."
However, as the market digested the remarks, the dollar began to fall below its levels prior to Greenspan's testimony. A softer US currency often lifts dollar-denominated precious metals, as they become cheaper for traders holding foreign money.
The euro was last quoted at $1.3043 from $1.3010 late on Tuesday. Technically, gold faces major resistance between $428 and $432, traders said, with support pegged at $425-424, and then at $422-418.
Spot gold was at $425.50/6.20 an ounce, down from Tuesday's New York close at $425.50/6.20. On Wednesday's late London fix was at $423.10. March silver sank 10.5 cents to $7.255 an ounce, after trading from $7.36 to $7.115.
Traders said the market pulled back on some profit taking after gaining some 75 cents since last week on a technical bounce. Spot silver was last quoted at $7.24/27, off from $7.18/21 previously.
On Wednesday's fix was at $7.13. Brokers put support at around $7.09 and then at $6.89, with resistance at $7.35/40 and $7.50/60. Nymex April platinum rose $3.10 to $856 an ounce, after a steep fall previously.
Spot traded to $854/858. March palladium fell $2.30 to $183.05 an ounce. Spot was last at $178/183.