SINGAPORE: Gold fell on Thursday in its fourth consecutive daily decline, moving more closely in tandem with the stock market than at any time in the last six months, as concern about Europe's debt crisis weighed on most asset classes.
Palladium rose following data that showed monthly exports from Switzerland rose to their highest in three years, while platinum remained under pressure.
French President Nicolas Sarkozy said efforts to secure a deal to tackle the euro zone debt crisis were stalled over methods to increase the firepower of the bloc's rescue fund.
Markets are riddled with uncertainty over the outcome of a key summit of European Union leaders on Oct. 23 at which France and Germany have committed to unveiling a series of comprehensive measures to prevent Greece from defaulting and stemming the spread of the sovereign debt crisis to larger economies such as Italy and Spain.
Traditionally, gold profits from such uncertainty and economic pessimism, but in times of rising market turbulence, the metal can behave much like commodities that are more closely linked with economic growth such as crude oil or copper, as investors tend to value the safety of cash over most other assets.
The correlation between gold and the stock market reached its most positive -- meaning the gold price was more likely to move in step with equities -- in six months.
Spot gold fell 0.8 percent to $1,628.60 an ounce by 0947 GMT, having dropped earlier by as much as 2.0 percent to $1,602.40. December gold futures fell 1.0 percent to $1,631.30.
"The summit is definitely important for the outlook for the gold market, but in the short term, it will behave like a risky asset," said Peter Fertig, a consultant with Quantitative Commodity Research.
"If the summit delivers a convincing proposal ... there would be a decisive recovery in the stock market, narrowing spreads in the bond market and most importantly, the euro would firm against the US dollar, which would be positive for gold, despite there being less demand for it as a safe-haven," he said.
Although gold has barely gained in price so far this month, investors have not lost their faith entirely in its safe-haven qualities.
BUYERS STILL THERE
Global holdings of gold in exchange-traded funds, a measure of investor demand for the metal, are set for a second straight week of gains, having risen by a net 102,793 ounces to around 67.158 million ounces, their highest in almost a month, according to Reuters data.
"Every commodity is falling as market participants turn pessimistic over what is happening in Europe," said Hou Xinqiang, an analyst at Jinrui Futures in China.
The 19-commodity Reuters-Jefferies CRB index posted its sharpest one-day fall this month with a fall of 1.3 percent on Wednesday.
"We are likely to see more downside in commodities in the near term, with the gloomy macroeconomic backdrop, but gold may hold up relatively well due to its safe haven nature, even though its commodity identity has been more pronounced lately," the Jinrui analyst said.
Platinum was down in line with other industrial raw materials, while palladium rose following bullish data from Switzerland, a major clearing hub for platinum and palladium that showed palladium exports at a three-year high in September.
Data from the Swiss customs office showed the bulk of last month's near-13 tonnes of palladium exports went to Germany, which took 8,043 kg, their highest level this year, followed by the United States, which accounted for 4,667 kg, which analysts said was almost certainly destined for the auto industry.
Top producer Russia imported 3,421 kg of palladium into Switzerland last month, bringing the total for this year to 9,925 kg. Russia has indicated its government stockpiles of the metal, which is most widely used in catalytic converters for gasoline vehicles, are close to depletion.
Spot palladium was last up 1.1 percent at $604.72 an ounce, while platinum fell 1.2 percent to $1,492.24 an ounce, having fallen earlier by as much as 3.4 percent.
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