Gold hit a record high on Tuesday before the sheer scale of its gains drew a burst of profit-taking, which in turn helped the dollar from two-year lows and kept equity markets steady.

The precious metal had risen almost $40 higher at one point to reach $1,980 an ounce. A wave of selling pushed back to $1,915 in volatile trade.

Gold is still up over $125 in little more than a week as investors bet the Federal Reserve will reaffirm its super- accommodative policies at its meeting this week, and perhaps signal a tolerance for higher inflation in the long run.

“Fed officials have made clear that they will be making their forward guidance more dovish and outcome-based soon,” wrote analysts at TD Securities. “The chairman is likely to continue the process of prepping markets for changes when he speaks at his press conference.”

One shift could be to average inflation targeting, which would see the Fed aim to push inflation above its 2 per cent target to make up for years of under-shooting.

The retreat in gold took some steam out of stocks, but Europe’s STOXX 600 eked out a 0.2 per cent rise after MSCI’s broadest index of Asia-Pacific shares outside Japan ended up 0.8 per cent.

Japan’s Nikkei closed lower, but Chinese blue chips rose 0.8 per cent and E-Mini futures for the S&P 500 were steady after a 1.7 per cent rebound from the Nasdaq on Monday helped Wall Street higher.

That rise was again led by technology stocks as investors wagered on upbeat earnings reports due this week. Analysts also noted the falling dollar helped, since more than 40 per cent of S&P 500 earnings come from abroad.

The rest of the week will see 179 S&P 500 companies reporting second-quarter earning, including Google, Amazon and Apple.

There were hopes a stimulus extension could be agreed in the United States. US Senate Republicans were trying to complete details of a $1 trillion to $1.5 trillion coronavirus aid proposal before enhanced unemployment benefits expire on Friday.

The proposal could cut unemployment benefits to $200 from $600, which would be a blow to household incomes and spending power.

Some 30 million Americans are out of work and states are tightening lockdown restrictions again, a trend that has also dragged on the US dollar.

Alan Ruskin, head of G10 strategy at Deutsche Bank, noted currencies had been tracking the relative performance of their economies, so that high-ranked economic performance was associated with stronger currencies.

“One clear pattern is how economies linked most tightly to China — including commodity producers as diverse as Australia, Chile and Brazil — have tended to perform better than economies most directly linked to the US, notably its NAFTA trading partners,” said Ruskin.

The dollar has been falling almost across the board, reaching a two-year low against a basket of currencies at 93.416 before recovering to 93.975.

The euro dropped back to $1.1710 after rising to its highest in two years at $1.1781. The dollar touched its lowest against the Swiss franc since mid-2015. It also fell to a four-month low of 105.10 against the Japanese yen before last trading at 105.57.

The reversal in the dollar combined with the uncertainty over COVID-19 and the prevalence of negative real bond yields has propelled gains by precious metals.

Silver rose as high as $26.16 at one point, the highest since April 2013 and a gain of 33 per cent in seven sessions. London trading saw it give back 4 per cent of that, leaving it at $23.5 an ounce.

Oil prices also tend to benefit from a falling dollar but have been hampered by worries about demand as countries impose more travel restrictions.

Brent crude futures edged up 4 cents to $43.45 a barrel. US crude eased 9 cents to $41.51.