Gold slipped to its weakest in a month on Monday before bouncing slightly as some investors looked for bargains, although speculators unwinding long positions and worries about the health of the global economy were likely to keep dragging on prices.
Falling equities could force speculators to cash in gold to cover losses and to turn to the safety of the dollar, although the metal could find support at around $1,700 – a level which may spark more buying from jewellery makers ahead of the year-end festive season.
Gold was standing at $1,723.19 at 0238 GMT, up $3.20 from Friday but still down from an 11-month peak of $1,795.69 marked in early October. It hit a low around $1,713 an ounce earlier on Monday.
There is still a chance that we'll see more selling, but just like this morning, it is evident that there's likely to be some good buying if gold gets closer to $1,700. Personally, I think $1,700 will be held, said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.
In the other metals as well, I think we're coming closer to the bottom of the current range, he said, referring to industrial metals.
U.S. gold for December was steady at $1,724.50 an ounce after falling to its lowest in more than a month in early trade.
Hedge funds and other big speculators have cut their bullish bets on U.S. commodities to the lowest levels since the end of August, with funds mostly bailing out of gold after its repeated failure to breach the $1,800-an-ounce mark.
Cash gold powered to a record of about $1,920 in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe.
European Union leaders face two months of tough bargaining on money, power and the future governance of the euro zone before they can boost confidence that the existential threat to the single currency has faded.
Investors are turning their attention to Federal Reserve's policy meeting on Tuesday and Wednesday after the central bank announced its third round of aggressive economic stimulus last month, which eventually sent gold prices to a peak in October.
While investors welcomed the Fed's plan for more economic stimulus, known as quantitative easing, the move underscored worries that the U.S. economy may be in worse shape than feared.
In other markets, shares fell on Monday as risk sentiment was dented by lacklustre earnings