Gold fell from record highs on Tuesday after Switzerland's decision to peg its currency to the euro shook financial markets and sparked a broad flight to liquidity, but the metal is set for fresh gains as the franc's safe-haven status wanes.

The Swiss National Bank said on Tuesday it would set a minimum exchange rate target of 1.20 francs to the euro and would enforce it by buying foreign currency in unlimited quantities.

The Swiss franc fell nearly 8 percent against the dollar and more than 8.5 percent against the euro. Gold priced in the Swiss currency rose more than 8 percent, and was set for its biggest daily gain since mid-September 2008.

Spot gold , which earlier rose to a record $1,920.40 an ounce, was down 0.4 percent at $1,893.40 an ounce 1306 GMT, well off its post-announcement low of $1,860.10.

'(Gold has already) recovered pretty well already from its lows,' said Alexander Zumpfe, a trader at precious metals house Heraeus. 'Initially there was some risk appetite back into the market -- Swiss franc down, gold down, stocks up.'

'Now things have kind of neutralized again, with gold back up,' he added. 'I guess the market (is waiting) for the US reaction... after their long weekend.'

Gold's 34 per cent rally so far this year, its largest yearly gain since 1979, has been fuelled largely by the impact on the currency markets of investor worries over the United States' and euro zone's debt burdens.

Market players are increasingly unconvinced of European leaders' ability to tackle the regional debt crisis, while the resilience of the US economy is coming into greater doubt after last week's weaker-than-expected employment report.

Investors have sought out Swiss francs, US and German government bonds and gold as havens from risk. Of these, Tuesday's intervention by the SNB could further boost bullion.

'Particularly for investors with proportional assets in Swiss francs, this will strengthen the appeal of gold relative to the Swiss currency. It has to be seen as bullish certainly from the private bank side of the gold market,' said Credit Suisse analyst Tom Kendall.

'We've seen U.S. Treasuries have their reputation as 'risk-free assets' damaged. Now we've got the Swiss franc subject to substantial and ongoing intervention by the SNB and so yes, it does strengthen gold's claim as a safe-haven.'

US gold futures for August delivery, which saw little trading on Monday during the US Labor Day holiday, were up $17.70 an ounce at $1,894.60.

After the downgrade to the triple-A credit rating of US debt and the SNB's decision to peg the franc, gold could well be the last remaining true safe-haven, but investors have not been flocking to it in droves in recent weeks.

The latest data on flows into exchange-traded funds shows global holdings of gold have fallen by nearly 2.5 million ounces over the last month to their lowest in six weeks at 67.4 million ounces.

'It's the fact that we are seeing one of the central banks making a move and taking a decision. We've been left in limbo for days in Europe,' said Saxo Bank senior manager Ole Hansen. 'If we see the Swiss franc pegged, where else can you go if the uncertainties continue other than into gold?'

Adding to the longer-term case for holding gold, workers in Italy began a strike on Tuesday as the centre-right government of Prime Minister Silvio Berlusconi scrambled to secure parliamentary backing for a package of austerity measures.

In Spain, a union leader told the state television that in mid-August the Prime Minister told unions the country was close to needing a bailout, at a time when markets had driven yields on Spanish bonds dangerously close to the levels that forced Greece and others to seek emergency funding.

Among other precious metals, silver fell by 1.6 percent to $42.15 an ounce, along with platinum , which fell 1.2 percent to $1,861.24 an ounce. Palladium was trading up 0.2 percent at $758.72.-Reuters