Gold prices fell to a two-week low on Friday after the European Central Bank said banks would repay 137 billion euros ($183.2 billion) in cheap loans, which reassured investors the euro zone banking system was stabilizing.
Concerns over the stability of the bloc's financial sector had supported demand for gold as a haven from risk. On Friday its failure to rise along with a stronger euro and gains in equities, which have typically boosted prices in the past year, exacerbated investors' lack of confidence, traders said.
Spot gold was last down 0.5 percent at $1,659 an ounce, having earlier touched its lowest since Jan. 11 at $1,655.39 an ounce. Gold priced in euros fell further, touching an eight-month low at 1,230.03 euros an ounce.
"Europe is suddenly in vogue, and those who bought gold as a hedge against it are getting out and into equities instead," Saxo Bank vice president Ole Hansen said. "Euro gold is also hurting some here."
He added: "If I were a hedge fund, I would sit on my hands and wait for a break of $1,700, as we could easily see lower levels before this stabilizes."
The euro hit an 11-month high versus the dollar after the ECB said 278 banks had decided to repay three-year crisis funds at the earliest opportunity next week. The total amount was above the 100 billion euros expected.
Higher repayments, seen as a further evidence that the situation on the financial markets has improved, put additional pressure on the gold price, analysts said.
Global shares also rallied, with European stocks helped by strong economic data out of Germany, which boosted expectations Europe's largest economy could help drag the region out of crisis. U.S. equities opened higher buoyed by sturdy corporate results.
Gold prices extended losses on Thursday, when their failure to break through resistance at $1,695 an ounce after numerous attempts prompted investors to liquidate long positions.
The next market-moving event on the calendar is expected to be a U.S. Federal Reserve statement on Wednesday, which could give more clues on monetary policy, analysts said.
"Accommodative policy is still expected to remain in place for some time, a scenario that continues to be conducive for higher gold prices," UBS analyst Joni Teves said in a note. "And in that sense, the recent pullback should be viewed as an opportunity to pick up metal at more attractive levels."
U.S. gold futures settled down $13.30 at $1,656.60 an ounce.
Physical Interest Emerges v
The price slump of the past few days has triggered some physical buying interest, analysts said.
"We can now see some restocking ahead of the Chinese new year and possibly some restocking in the inventory chain in anticipation of a better economic environment through the first half," SP Angel analyst John Meyer said.
Spot silver was last down 1 percent at $31 an ounce, after hitting a one-week low of $31.39 in earlier trade.
Spot platinum was last 0.6 percent higher at $1,688, on course for a weekly gain, extending its winning streak to a fourth week, its longest in a year. Spot palladium last edged up 1.9 percent to $738 an ounce.
Expectations that global demand for the platinum group metals from the automotive sector will increase in line with an economic recovery underpinned the metals.
Moreover, a move to diesel cars from gasoline engines in the United States is seen as a potential source of buying for platinum in the long term, analysts said. Platinum is used in diesel engines to clean exhaust emissions.
"In the United States, the switch from gasoline to diesel is at a much earlier stage ... around 5 percent of newly sold passenger cars in the United States run on diesel, up from just 1.7 percent in 2008," Natixis said in a note.
"This suggests a structural shift, which should progressively increase demand for platinum in the coming years as the United States embraces ultra-low sulfur diesel amid tightening fuel efficiency requirements," it added.