Gold prices fell 1 percent on Tuesday as the dollar firmed against the euro and stock markets fell, with appetite for assets seen as higher risk hurt by a credit downgrade of five Spanish regions and a raft of soft corporate earnings reports.
Soft results statements from the likes of Caterpillar, General Electric and Alfa Laval have undermined stock markets, while Moody's decision to cut its ratings on regions such as Catalonia pushed the euro zone debt crisis into the spotlight.
Pressure on gold from weakness in stocks helped push prices to six-week lows at $1,711.40 an ounce, putting it on track to decline in October for the first month in five.
Spot gold was down 0.9 percent at $1,713.40 an ounce at 12:09 SA time, while US gold futures for December delivery were down $11.50 an ounce at $1,714.80.
The metal has struggled for traction after twice failing to break through the $1,800 level. It hit a 2012 high earlier this month at $1,795.69 after the Federal Reserve unveiled a fresh round of quantitative easing measures to stimulate growth.
“You've had QE priced in and what we're seeing now is a bit of a retracement following that,” Deutsche Bank analyst Daniel Brebner said. “We have a pause in monetary policy action - it's very unlikely we're going to see anything in the US and China while there is politicial transition.
“Conditions economically remain tenuous... there are concerns with respect to growth, and therefore the potential for deflation is starting to pick up a little bit,” he added.
“This is really causal to gold's decline. We're likely to see some support around the 1,700 level, but right now I'd characterise the market as being in a trading range, with some downward pressure within that.”
Attention is now turning to the two-day meeting of the US Federal Reserve in Washington. While the Fed is not expected to add to last month's QE pledge, its comments will be closely watched for clues on the next direction of policy.
The Fed explicitly tied its $40 billion a month programme to the health of the US jobs market. While some recent data have been encouraging, the jobless rate remains elevated at 7.8 percent.
SUPPORT SEEN
From a technical perspective, analysts who study past price patterns for clues on the next direction of trade flag up support at the key psychological level of $1,700 an ounce.
Below that, it is expected to hit more support at $1,693, a key retracement in its rally from the year's low in May to its recent high.
“Should (Monday's low) be slipped through, the $1,697.30/$1,693.42 support area - the late March high and 38.2 percent Fibonacci retracement - will be back in play,” it said in a weekly report. “In this scenario it is also possible that the 200-day moving average at $1,663.25 will be revisited.”
In India, historically the world's largest bullion consumer, demand picked up as prices dipped ahead of a key festival season that is seen as an auspicious time to buy gold.
Gold-backed exchange-traded funds, which issue securities backed by physical metal, saw inflows on Monday of around 112,223 ounces, with the bulk of inflows moving into New York's SPDR Gold Trust.
Among other precious metals, silver was down 1.7 percent at $31.83 an ounce, while spot platinum was down 1.3 percent at $1,581.25 an ounce and spot palladium was down 1.7 percent at $609 an ounce.
South Africa's Royal Bafokeng Platinum said on Tuesday quarterly production dipped by 1 percent, hit by a three-day wildcat strike. The company is one of a number of miners to be hit by labour unrest this year.
More than 50 people have been killed in South Africa's platinum belt since August, including 34 strikers shot dead by police at a Lonmin mine. - Reuters