Gold followed oil prices lower on Thursday as the market gave back early gains and selling intensified in late US trade. Palladium, meanwhile, surged to a 10-week high on technical buying and strong demand from the jewellery sector, analysts said.
Spot gold rose as high as $631.70 an ounce before slumping to $615.10/615.85 in New York, off from $627.00/7.80 late on Wednesday, when it gained $3.
Traders said the selling was both technically based and part of a cross-commodity sell-off as copper and oil posted declines on speculative liquidation.
"We started to move lower, the locals started pressuring the market on the COMEX, and it started to look really weak, and scale-down buying by investment banks couldn't support it," said a New York contact.
Support in spot was pegged at $610 and $600, traders said.
Benchmark December delivery gold closed down $13.70, or 2.1 percent, at $625.30 an ounce on the New York Mercantile Exchange's COMEX division. The day's low at $623.50 was the cheapest for futures since July 25.
Crude prices fell nearly $2 to a two-month low Thursday as ample inventories eased supply worries.
Oil has become a major factor in gold's price moves, Barclays Capital said.
"Daily price changes are showing a strong tendency to take direction from movements in oil and in EUR/USD, with the recent fall in the former, and relative resilience of the latter, limiting the upside in gold at the moment," it said in a note.
In this environment, gold will struggle to break through $650-$660, Stephen Briggs, economist at SG Corporate and Investment Banking, said.
"It will need some big trigger to propel it through that," Briggs said.
Dealers said gold could jump on a sharp drop in the dollar, or any escalation in geopolitical tension. More US economic data might provide some direction to the market.
The dollar recovered ground after two days of falls. Supporting the currency was the Philadelphia Federal Reserve Bank, which said its index of business conditions in the US mid-Atlantic region climbed in August to the highest level in more than a year.
At midafternoon, the euro was hardly changed at $1.2815 . A firmer dollar often reduces purchases of dollar-denominated assets like gold in overseas markets.
In other precious metals, palladium rose as high as $338 an ounce before easing to $336/341, up from $331/335.
Silver was down at $11.94/12.04 an ounce from $12.25, while platinum fell to $1,230/1,235 an ounce from $1,238/1,243.
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