Gold gained on Tuesday as the euro jumped after China's central bank set the yuan's daily mid-point at its strongest since a 2005 revaluation, while a drop in bullion prices from a record also triggered bargain hunting.

Gold could still revisit $1,250 an ounce due to worries about the global economy, but an increase in risk appetite following China's move could cap gains. Silver and platinum group metals were higher, partly driven by firm base metals. Spot gold  rose $6.65 to $1,238.30 an ounce in Asian trade. Gold struck a record high around $1,264 on Monday before a sudden drop in the euro prompted heavy selling from investors, sending the price down to a low around $1,230.

"There's some physical buying from the retail sector but I think there's not much. The market is consolidating after reaching record highs," said a dealer in Hong Kong.

"This is also a good time to take profits but I don't think gold will fall below $1,200. We may trade in a range of $1,230 to $1,248 ahead of the FOMC meeting. If goes back to around $1,250, we may see another record high next week," he added.

China's central bank set the yuan's daily mid-point at 6.7980 against the dollar on Tuesday, in the second day of trading since China pledged at the weekend to make the yuan more flexible.

A Reuters poll of analysts showed Chinese authorities will only allow up to a 2.4 percent rise for the yuan against the dollar by the end of 2010, keeping its word that it will keep the currency basically stable.

The Federal Reserve's two-day policy meeting begins on Tuesday and some dealers are increasingly convinced the U.S. central bank will leave its policy rate target in the zero to 0.25 percent range until the middle of 2011.

U.S. gold futures for August delivery fell $1.5 an ounce to $1,239.2, after hitting a record around $1,266.

Gold has rallied to records as investors turned to the metal on worries the euro debt crisis would spread, the U.S. economy may be slowing and after China's move to make the yuan exchange rate flexible put pressure on the dollar.

"In the short-term the gold price may be in for some consolidation," said Fortis Bank Nederland in a report.

"But rather like a long-distance runner who has been sitting in an armchair for years, the gold price needs to pause for breath before the next small rally higher."

The euro and the Australian dollar hit their highs on the day on Tuesday after China's central bank set the yuan's mid-point higher, while the Nikkei slipped after a bounce to a one-month high the previous day.

Oil fell 0.8 percent toward $77 on Tuesday on speculation that a gradual appreciation of the yuan would have a limited impact on China's petroleum imports in the short term.

From: CNBC