Gold changed course to fall by 1.3 percent to a one-week low as a rise in the dollar after better-than-expected data on the US services sector triggered bullion selling. Gold fell as low as $645.70 an ounce, the lowest since June 28, after rising to a high of $656.45.
It was quoted at $646.40/647.00 by 1449 GMT, against $654.40/655.20 in late European trade on Wednesday, when the US market was closed for the Independence Day holiday.
"Now the euro/dollar is below $1.36 again, so we see some liquidation of long positions which had been taken on Monday and Tuesday. Also, physical demand has been slow but we are expecting the demand back around the $645-646 level," said Michael Kempinski, senior trader at Commerzbank International.
"We are still in a downtrend channel and the first support line is at $635 at the moment. If the euro/dollar doesn't recover above $1.36 again, we will definitely see some more selling," he added.
The dollar rose, erasing earlier losses against the euro after a gauge of activity in the US services sector beat forecasts for the month of June. The euro fell as low as $1.3578 and was last traded at $1.3598.
The dollar edged higher after the Institute for Supply Management's services index unexpectedly rose to 60.7 in June, beating forecasts for a modest decline from the previous month to 58.0 and easing concerns about a slowing economy. A weaker dollar makes gold cheaper for holders of other currencies and lifts bullion demand. The metals is also often seen as a hedge against oil-led inflation.
Oil surged above $74 a barrel to another 10-month high ahead of US data that are expected to show refiners are processing more crude to meet robust summer gasoline demand in the world's top consumer.
UBS Investment Bank noted that gold held by major exchange traded funds (ETFs) remained at more than 20 million ounces, but some investors moved out of the market in the second quarter. Since a peak in gold holdings on April 19, the ETFs have lost 938,000 ounces, or about 29 tonnes.
"Gold's recent sell-off may has probably triggered some institutional selling and after gold has apparently based at about $640, this will probably stop," John Reade, head of metals strategy at UBS, said in a daily note.
In other metals, platinum was at $1,284/1,289 an ounce, against $1,282.50/1,286, while silver declined to $12.42/12.47 an ounce from $12.62/12.66. Palladium was flat at $364/369 an ounce. "Palladium prices are potentially exposed to downside risk in the forthcoming weeks as speculative long positions in the metal remain at elevated levels," Barclays Capital said.
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