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.