PRECIOUS-Gold drops 1 pct on waning investor appetite
* Spot gold falls 1.2 percent to 10-day lows
* Failure to break higher dents gold investors' confidence
* HSBC Asset Allocation shifts out of gold
(Add comments; updates prices)
LONDON, Jan 24 (Reuters) - Gold fell 1.2 percent to a 10-day low on Thursday after a repeated failure to break above a key chart level hurt investor confidence in the metal.
A recovery in gold prices this month ran out of steam as the metal hit strong resistance at $1,695, its 55-day moving average and early January high. After failing to break decisively above that level for five straight sessions, gold fell.
Spot gold slipped to a low of $1,664.69, just above its 200-day moving average, before recovering to $1,674.16 an ounce at 1610 GMT, down 0.6 percent. U.S. gold futures for February delivery were down $12.20 at $1,674.50 an ounce.
"We are seeing some intra-day long liquidation today after gold failed to break above key resistance levels," Afshin Nabavi, head of trading at MKS Finance said.
"Gold is stuck in an extremely tight trading range and (as long as) we don't break above $1,700 or below $1,650, we will continue to see price swings and investment interest will be deterred," he added.
HSBC said in a Global Asset Allocation note dated Wednesday that it has halved its exposure to gold, shifting its inflation hedge from the precious metal into treasury inflation-protected securities.
The bank attributed the move to a decline in systematic risks, as the probability of a euro zone breakup fell and "the most apocalyptic" of U.S. fiscal outlooks was avoided.
The bank said it no longer views gold as a "sound investment" should the global economy fall back into recession, as this would not now be driven by a major systematic event such as a sovereign default.
Gold also came under pressure from the House of Representatives' decision late on Wednesday to extend the U.S. debt ceiling limit to May 19, avoiding for the time being a repeat of a 2011 standoff that sent gold to record highs at $1,920.30 an ounce, analysts said.
"People are looking for any kind of direction, so any news of such calibre (as a decision on U.S. debt ceiling) would be of interest," MKS' Nabavi said. "But any time we get close to the deadline, the talks get prolonged, putting some pressure on the market."
INDIAN DEMAND LANGUISHES
Physical buyers in main gold consumer India reported that they were struggling to sell stocks despite offering discounts to buyers, as the market digested a 50 percent hike in import tax.
"Traders had stocked before the tax in anticipation of demand, but now the market has slowed," Lokesh Kumar Agarwal, chairman of wholesaler Brijwasi Bullion and Jewellers, said, adding that people are offering discounts of 100 rupees.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, fell another 1.8 tonnes on Wednesday, bringing its overall outflow for the year to 16.7 tonnes.
More positively for prices, the Russian central bank's First Deputy Chairman Alexei Ulyukayev said on Thursday Russia will keep buying bullion. The bank said in 2005 it planned to lift gold to 10 percent of forex reserves, a level it is approaching after buying around 550 tonnes of gold in the last six years.
"We are buying metal and will continue to pursue this course," Ulyukayev told reporters on the fringes of the World Economic Forum in Davos. "This is a course of asset diversification in a situation when investing in securities or deposits remains risky."
Data from the International Monetary Fund suggests Russia has been the world's largest official sector gold buyer since 2005, although some countries, such as China, do not regularly update the IMF on additions to their holdings.
Among other precious metals, silver was down 1.2 percent at $31.87 an ounce, while spot platinum was down 0.1 percent at $1,683 an ounce and spot palladium was down 0.1 percent at $722.47 an ounce.
(Additional reporting by Clara Denina; Editing by Alison Birrane)