SINGAPORE: Gold broke below the key psychological level of $1,300 an ounce on Thursday as safe-haven demand for the metal eased due to rising Asian equities and strong Chinese manufacturing data.
Physical demand in the region, however, increased slightly on the lower prices, with premiums in the biggest bullion consumer China edging up on buying interest.
Spot gold fell 0.7 percent to $1,295.00 an ounce by 0615 GMT, after dipping 0.2 percent in the previous session. US gold slid about $9 to $1,295.50.
Asian stock markets edged higher on Thursday as China's factory activity expanded at its fastest pace in 18 months in July, bolstering hopes for recovery in the world's second-biggest economy.
"The safe-haven demand for gold is muted now as equities are gaining strength and there has been no significant worsening of tensions in the Middle East or Ukraine," said one trader in Hong Kong.
Another trader said there were also stop-loss orders below $1,300 which prompted some selling.
Gold had recently seen support build around the $1,300 level on deepening violence in the Middle East and Ukraine that burnished its safe-haven appeal. The metal is seen as an alternative investment to riskier assets such as equities during times of uncertainties.
Bullion could still see some safe-haven bids as Gaza fighting raged on Wednesday, displacing thousands more Palestinians in the battered territory. A Gaza truce involving a withdrawal of Israeli ground forces from the Palestinian territory would be unlikely before next week, an Israeli cabinet minister said on Thursday.
Meanwhile, Kiev said two of its fighter jets were shot down over the rebel-held territory in eastern Ukraine on Wednesday, and the missiles that brought them down might have been fired from Russia.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings rose 0.6 tonnes to 805.44 tonnes on Wednesday - increasing for a second straight day.
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