Gold slipped to a one-month low below $1,700 an ounce on Wednesday as a weaker price forecast by Goldman Sachs triggered some fund liquidation, offsetting news of fresh central bank buying.

Bullion later rebounded off its lows to end down 0.2 percent. Earlier in the session, it was under technical selling below its 100-day moving average and after it broke through support at Tuesday's low at $1,690.64.

Gold was pressured after Goldman Sachs cut its 2013 gold outlook and said the metal's current bull cycle will likely turn next year as rising real interest rates and better growth offset monetary stimulus from the U.S. Federal Reserve.

Gold fell more than 1 percent on Tuesday, under performing equities and other commodities, as heavy fund liquidation and options-related selling sent bullion prices below a key technical support.

The metal hit its lowest price in nearly a month after it broke below its 100-day moving average at $1,698 an ounce, the level gold had held since mid-August. Economic uncertainty related to U.S. budget talks and bouts of heavy selling after last week's option expiration also pressured bullion,traders said.

"You cannot attribute this kind of volatility to any sudden, new fundamentals. There are obviously some large fund, algorithmic-type players moving the market around,'' said Bill O'Neill, partner of commodities investment firm LOGIC Advisors.

Open interest, a gauge of market activity, has shrunk 10 percent since it hit a 14-month high of near 500,000 lots on Nov. 23. The market has now fallen in five out of the last seven sessions.

Dealers say confidence in gold has been eroded by memories of last December's 10 percent price slide and disappointment over a failure tobreak $1,800 an ounce on the heels of another round of bullion-friendly assets buyback in September.

Spot gold fell as low as $1,690.64 an ounce and was down more than one percent near $1,696 in U.S. afternoon dealings.

Most-active U.S. COMEX gold futures contract for February delivery settled down $25.30 at $1695.80, with trading volume on track to finish in line with its 30-day average, preliminary Reuters data showed.

Dealers say confidence in gold has also been eroded by memories of last December's 10 percent price slide and disappointment over a failure to break $1,800 an ounce on the heels of the Fed's assets buyback in September. Republicans in the U.S. Congress on Tuesday attacked each other over their leadership's "fiscal cliff" offer to Democratic President Barack Obama

Jeffrey Sherman, commodities portfolio manager at the $50-billion DoubleLine Capital, said gold was weighed down by the bickering between the U.S. Republicans and Democrats during negotiations over $600 billion worth of impending tax hikes and spending cuts.

Economists said such drastic fiscal measures could push the U.S.economy into recession, dragging equities and other assets lower and hence undermining gold's inflation-hedge appeal.

Spot silver dropped more than 2.5 percent to stay below $33.

Nonfarm Payrolls Eyed

Gold investors are now focusing on the outlook for U.S. non-farm payrolls data on Friday, due to the link between job creation and monetary policy.A dearth of new jobs could mean that the current ultra-loose monetary policy will persist.

Platinum group metals retreated after Monday's gain on news U.S.auto sales in November raced to a five-year high for that month on a rebound from storm-ravaged October and the need to replace aging vehicles. Encouraging auto sales data left industry executives optimistic about 2013.

Spot platinum was down more than a percent around $1,583 an ounce, while spot palladium, which has risen for the past five weeks, slid more than 1 percent to trade below $679.

Gold edged up in quiet trade on Monday on a dollar drop and a mixed bag of U.S. and Chinese manufacturing data, while uncertainty over the outcome of U.S. budget talks kept the metal from rising further.

A record high in the physical bullion held by the world's largest gold exchange-traded fund SPDR Gold Trust underscored strong investment demand, and better Indian bullion buying suggested physical buying could underpin prices, analysts said.

Bullion climbed after Chinese PMI manufacturing data showed the key sector grew last month for the first time in more than a year, while U.S. manufacturing activity unexpectedly contracted in November to its lowest level in more than three years.

"New contract month and new positions are helping gold. We have some bargain hunting on an improvement from China's PMI and after last Wednesday's heavy selling,'' said George Gero, vice president at RBC Capital Markets.

Spot gold was last up 0.1 percent at about $1,717 an ounce.

Newly created longs lifted gold prices, traders said. Last week, gold dropped sharply after Wednesday's 1.3 percent decline due to a December-February contract rollover and worries that the U.S. fiscal crisis might lead to a recession.

U.S. gold futures settled up $8.40 at $1,721.10 an ounce. Trading volume was about 50 percent below its 30-day average, preliminary Reuters data showed.

Markets are getting cautious over the approaching $600 billion in tax hikes and spending cuts that will automatically start in early January. A failure to reach a deal to avert the so-called fiscal cliff could trigger a recession, economists said.

Some analysts say lengthy and acrimonious talks could prompt safe-haven buying of gold. However, others warned long-drawn-out talks could hurt the precious metal if they spark broad-based selling of stocks and commodities.

"As long as there are no signs for a compromise being reached, the downside risks prevail (for gold), even in the case that the fiscal cliff will be avoided,'' Quantitative Commodity strategists said in a note.

Silver rose 0.8 percent to around $33 an ounce.

SPDR Gold, Indian Buying Strong

Gold buyers in India, one of the world's biggest bullion consumers, stocked up on the metal as prices hovered around their lowest in a month.

Underscoring investors' interest in the metal, holdings of gold-backed exchange-traded funds hit a record high, and speculators raised their net length in gold for the third straight week.

Platinum group metals, which are mainly used to make auto catalytic converters to clean exhaust fumes, received a boost after several automakers reported strong U.S. new-car sales for November.

Spot platinum edged up 0.4 percent to $1,606 an ounce, and palladium rose 1.8 percent to $689 an ounce.