Gold slid more than 1 percent to a one-week low on Thursday following falls in equity markets, but worries about the approaching US 'fiscal cliff' underpinned prices. World equity markets fell for a seventh day on Thursday, hit by evidence that Europe's debt crisis has stalled economic growth and by persistent concern over the budget problems in the United States.
Losses in stocks helped push spot gold down 0.79 percent to $1,712.4 by 1528 GMT, clawing back some territory after hitting a one-week low of $1,704.69, while US gold for December was down $17.40 an ounce to $1,712.70. "The fall to session lows in gold is driven by equities. And the end of mining strikes in South Africa is having an impact on platinum group metals, and gold too," Peter Fertig, a consultant with Quantitative Commodity Research, said.
The last of a wave of illegal strikes that have swept South Africa's mining sector ended on Thursday after workers accepted an offer from Anglo American Platinum Ltd, the world's top producer of the precious metal. Platinum eased 1.06 percent to $1,566.25, while sister metal palladium was last at $632.47, down 0.15 percent. Silver was down 0.67 percent at $32.43 an ounce.
Referring to falling gold and equity markets, Nic Brown, an analyst with Natixis, said, "You get periods of high correlation between risky assets, and this seems to be happening now. "There are times when gold is just another commodity." Brown added, however, that concerns over the approaching US "fiscal cliff" - a combination of government spending cuts and tax rises that become effective in early 2013 if Congress cannot reach an agreement - may lift gold's appeal as a safe haven if negotiations over how to tackle it are protracted.
"If ... agreement looks less likely, I see risks to the upside in the gold price," he said. Political tensions traditionally also lift gold, though their impact has been outweighed in recent years by economic concerns. If the situation deteriorates, it could affect gold. "An all-out war would trigger high oil prices, leading to higher inflation and subsequently a return to recession," which would support gold, Saxo Bank Vice President Ole Hansen said.
"In the short term, it could trigger a massive risk-off which ... would hurt gold as the dollar would rally." A report from the World Gold Council showed on Thursday that global gold demand dropped 11 percent in the three months to September from record levels in the same period last year, hurt by lower demand in China as its economy slowed but with stronger Indian buying stemming a larger fall.
Gold prices in India, historically the world's biggest buyer of bullion, nudged down in line with spot prices on Thursday as the rupee firmed against the dollar, but dealers expected local prices to remain firm given the wedding season. Global jewellery consumption dipped 2 percent to 448.8 tonnes, the WGC report showed, while demand for coins and bars fell 30 percent. European investors, particularly in German-speaking markets, accounted for half of the 128.1 tonne drop in bar and coin demand.