Spot gold stood at $1,077.15 per ounce at 1645 GMT, up 1.7 per cent from $1,059.15 quoted late in New York on Monday. Earlier, gold hit a historic high of $1,080.60.

U.S. gold futures also hit a record $1,081.70 an ounce.

The IMF said on Monday it had sold 200 tons of gold to India for $6.7-billion. Although an IMF gold sale had been flagged for some time, it lifted some uncertainty from the market by helping soak up potential supply.

“The market is managing to decouple from the dollar on the news from the IMF - which begs the question: they've sold half of the 400 tons they have in this off-market transaction, will be they able to sell the balance to other central banks?” said Robin Bhar, metals analyst at Calyon.

“I think the market is hoping that another announcement will be made for the balance,” he added.

The IMF sale, part of an agreement to sell about an eighth of the Fund's stock, fueled speculation that other governments -  including Beijing - may be ready to diversify their reserves even at near record prices.

“It's a rumor but I'd say where there is smoke there is also some fire,” said Commerzbank analyst Eugen Weinberg.

U.S. traders also said the gold market was finding support from potential for accelerated producer buybacks in as miners are keen to back gold they had previously sold forward.

Miners Anglogold Ashanti and Barrick Gold both told Reuters on Monday that closing of their hedge books might happen ahead of schedule.

AngloGold Ashanti said it may accelerate closing its hedge book if conditions are right., while Barrick, the world's biggest miner of the precious metal, said it may complete the planned cloing of its hedge book before the end of the 12-month window.

The dollar hit a one month high against a currency basket on Tuesday as investors retreated from risk assets, before paring those gains.

A strong dollar makes gold and other commodities priced in the U.S. unit less attractive for non-U.S. investors but gold bucked the trend.

“Gold is gold, people love it. Whether it's rational or not, is another thing,” said Stephen Briggs, commodity strategist at RBS. “This has quite clearly broken away from the relationship with the dollar.

“We wouldn't be surprised to see $1,100. It's gone up $25 in the space of half an hour, so how can one say?”

Looking ahead, the U.S Federal Reserve began a two-day policy-setting meeting Tuesday.

While the bank is expected to keep benchmark interest rates unchanged near zero, there is speculation it might alter its pledge to keep rates low for an “extended period”.

In the broader markets, European stocks fell to a one month low as banks suffered poor results. Declining equity markets used to boost gold's safe haven appeal, but they have recently worked to increase safe haven flows to the dollar.

On the physical investment side, the picture still looked subdued. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,103.519 tonnes as of Nov. 2, unchanged from the previous business day.

Other precious metals rallied in gold's wake, with silver adding 2.8 per cent to $16.90 an ounce, against $16.43 an ounce late on Monday.

Silver has also been boosted by a pick-up in industrial demand. The metal is primarily industrial in application, and is widely used in electronics manufacturing.

Platinum rose to $1,340.50 an ounce compared with $1,334.00, while palladium was at $323.00 against $321.50.