Gold prices surrendered gains on Wednesday to fall back to one-month lows below $1,690 an ounce as gains in the dollar and technical pressure helped offset early support from stronger equities and news of fresh central bank buying. Selling accelerated as the precious metal slipped through its 100-day moving average at $1,698 an ounce, and prices later broke through support at its Tuesday low at $1,690.64 an ounce.
A stalemate in talks to avoid the United States' so-called "fiscal cliff" - $600 billion in tax hikes and spending cuts due to kick in the New Year - have left gold at the mercy of a relatively weak chart picture. "While the fundamentals for gold are strong, particularly given the Fed's accommodative stance, the positive momentum seems to have all but disappeared for the moment," BNP Paribas analyst Anne-Laure Tremblay said.
Spot gold was down 0.4 percent at $1,690.00 an ounce at 1521 GMT, having earlier hit a low of $1,697.04. US gold futures for December delivery were down $4.30 an ounce at $1,691.50. The euro surrendered early gains after hitting a seven-week high against the dollar on Wednesday, with a disappointing Spanish bond auction and weak euro zone economic data prompting investors to book profits on recent gains. "It appears that the risk-off sentiment caused by the lack of progress in the US fiscal cliff negotiations is weighing on all asset classes, even the safe-haven precious metals," Standard Bank said in a note. Goldman Sachs said on Wednesday gold's current price cycle will likely turn next year as a rise in real interest rates on the back of improved growth offsets any further balance sheet expansion from the Federal Reserve. The bank also cut its 2013 gold forecasts.
Positively for gold, South Korea's central bank said late on Wednesday it bought 14 tonnes of the metal in November, boosting confidence that official sector interest in bullion is firm. Central banks have switched to being net buyers of gold from net sellers in the last two years, with most acquisitions made by banks in Asia and the developing world. Central banks buying accounted for 455 tonnes of demand last year. "By its own account, the Korean central bank regards gold as a safe asset and as a means of diversification in a bid to reduce the risks of foreign-exchange reserves management," Commerzbank said.
From a chart perspective, Commerzbank's technical team said it remains optimistic towards gold despite recent losses. "We will retain our bullish view... while the November low, 200-day moving average and 50 percent retracement of the May-to-October rise at 1672.50/1661.64 underpins on a daily closing basis," it said. Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, hit a record high as the fund reported a 2.4 tonne inflow on Tuesday.
On the physical markets in major consumer India, gold buyers booked deals for the peak wedding season as prices stayed near their lowest in a month. Among other precious metals, spot silver was down 0.5 percent at $32.75 an ounce, platinum was at $1,573.49, down 0.4 percent, and palladium was down 0.4 percent at $674.97.
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