Gold slid in Europe on Friday as the dollar firmed against the euro on a narrower than expected US current account deficit in the fourth quarter of 2003, and after a consumer sentiment index came close to forecasts.
Platinum group metals (PGMs) put in a more positive performance, staying near recent peaks, as palladium, which has gained nearly 17 percent in value since the start of the month, notched up a 16-month high.
Bullion spent most of the morning sitting around unchanged levels, shrugging aside fears that pushed many stocks lower and boosted bonds in the wake of the Madrid bombs.
But when the dollar turned north on the current account and University of Michigan index, gold prices headed south.
"It is definitely euro-linked. It was already looking muted the whole day and with the strengthening dollar, good selling came in," one trader said.
Spot gold dropped to trade at $395.90/396.60 at 1533 GMT after touching a high of $402.75 earlier.
That compared with $402.25/403.00 last quoted in New York.
Dealers and analysts said that gold was reflecting its currency fundamentals as geo-politics were becoming less significant.
A surging euro was responsible for moving gold to a 15-year peak of $430.50 an ounce on January 6, while a recovering dollar shoved it down to a 15-week low earlier this month at $387.60.
Speculators continued to turn to palladium, which traded up to its highest since November 2002 on Friday.
"I think it's all speculative interest, it's been in all the PGMs...they are all looking pretty robust on this, along with silver and the base metals," a trader said.
Investors were turning their attention to the industrial metals in the hope that signs of a global economic recovery would stoke demand for manufactured goods and sectors, like construction, which use the metals often intensively.
"Industrial consumers are rather reluctant to buy and wait or hope for lower prices," another trader said.
The first trader said that while it could not be ruled out that palladium could reach $300/oz, it was also attracting selling - possibly from top producer Russia - at these levels.
Palladium was nevertheless looking much healthier than this time last year, when it was starting its slide down to seven-year lows of $140. Spot was at $275.00/280.00, slightly off its earlier high at $280 but up from New York's previous $270.50/276.50.
Platinum was at $902.00/907.00 versus $900.00/905.00.
Silver hit a fresh six-year high at $7.25 an ounce in Asia before retreating on gold's fall to $6.93/6.96, compared with $7.15/18 in New York on Thursday.
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