Gold fell 1.5 percent on Wednesday as the US dollar gained on doubts over the progress of Europe's efforts to tackle its debt crisis, while this week's brutal correction in bullion also kept investors at bay. Bullion erased initial gains as the dollar accelerated gains while crude oil and grain prices tumbled. Wall Street also fell as investors were cautious ahead of an audit of Greece's finances. Renewed risk appetite had lifted equities and commodities on Tuesday.
The metal has lost 9 percent in the past five sessions after a sharp margin increase and heavy fund selling, but investors in bullion exchange-traded funds and gold options remained unconvinced that the metal's sell-off has damaged its safe-haven status.
"If the eurozone's efforts to remedy the sovereign debt crisis falter, gold could still rally even if riskier assets sell off. The US dollar and gold could both rally if investor's anxieties rise," said James Steel, metals analyst at HSBC. Spot gold was down 1.8 percent at $1,618.99 an ounce by 1:12 pm EDT (1712 GMT).US gold futures for December delivery were down $31.80 to $1,621.10 an ounce.
Silver was down 5.3 percent to $30.14 an ounce in choppy trade. Silver prices have seen their second major retreat of the year this month, falling 23 percent so far in September. Bullion fell as inspectors from the European Union and International Monetary Fund headed to Greece to scrutinise new austerity measures they must endorse for Athens to get the next tranche of aid.
The recent drop in gold has washed out some less committed investors from the market, analysts said, while its resilience at lower levels has fuelled confidence that higher prices can be sustained. Gold's sharp correction has not yet unnerved investors in the No 1 gold exchange traded fund SPDR Gold Trust. And there is no sign that gold futures and options investors are heading for the exit either, data showed.
Analysts who study charts of past price movements said gold had found support from a long-term moving average. "We reached the 200-day moving average, which should now be the line in the sand," said Saxo Bank senior manager Ole Hansen. Gold bar premiums in India, the world's biggest bullion consumer, hit their highest in more than a year, to top $2 an ounce, after prices fell from the record highs. Premiums for gold bars elsewhere in Asia also rose.
UBS said in a note that volume on the Shanghai Gold Exchange hit levels not seen since the Lunar New Year in January. The bank said that active buying by longer-term physical investors should lift gold prices. Spot platinum was down 2.2 percent at $1,523.75 an ounce, while palladium fell 2.5 percent to $627.13 an ounce.