Precious metals fell sharply Tuesday after climbing to new highs last week, with gold shedding 3.4 percent in value on profit taking and palladium dropping by 7.5 percent, dealers said.

A correction was inevitable following a jump in prices over a short period of time, but the metals had potential to strike again after a breather, dealers said. Precious metals have risen more than 10 percent in just over a month.

By midafternoon in New York, spot gold was down more than $20, or 3.4 percent lower, at $549.80/550.70 an ounce. That compared with Monday's New York close of $570.00/570.90.

The move was its biggest one-day decline in dollar terms in nearly 13 years, according to Reuters charts.

"People were liquidating today," said a precious metals broker in New York. "Everyone was nervous that we were making no more headway."

Tensions over Iran's nuclear ambitions had pushed gold to a 25-year high of $574.60 last week.

"Whether the metal stabilises here or falls further depends a little bit on the (physical) demand," said Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Germany's Heraeus.

"We have seen quite some offtake, not only in gold but also in silver and platinum... I think this correction is temporary," he said, adding that further moves by gold would depend on the political situation in the Middle East and crude oil prices.

Oil sank 3 percent to about $63 a barrel in New York as dealers anticipated another increase in already robust U.S. crude supplies, pushing worries over Iran's oil exports into the background.

The West is showing concern that a diplomatic crisis with Iran over its nuclear ambitions could lead the OPEC nation to cut its exports in protest, or could lead to sanctions that limit its shipments.

"Geopolitical tensions have helped to support the (gold) price, but otherwise the market is lacking any external impetus," Alan Williamson, head of commodity research at HSBC Bank, said.

Base metals also backtracked during mid-afternoon trading as fund profit-taking spilled over. Declines were seen as a needed correction, but not severe, as wariness of short-selling prevailed, dealers said.

Matthew Turner, analyst at Virtual Metals, said gold prices had risen more than $100 an ounce in the past three months and a correction at some stage was inevitable.

But analysts said gold would rise again to hit new highs.

"Much of gold's recent rally has been supported by positive investor sentiment in light of rising oil prices, inflation concerns and geopolitical volatility, and we do not expect these supportive macro-factors to dissipate in the near term," Barclays Capital said in a report.

In other precious metals, palladium fell to $286.50/290.50 an ounce. It closed in New York on Monday at $308/312.

Platinum declined to $1,055.50/1,060.50 an ounce, from $1,068/1,072 previously.

Silver sank to $9.40/9.43 an ounce, from $9.76/79 late Monday.