Gold fell nearly one percent on Thursday as investors disappointed by its failure to rally further on the previous day's soft U.S. growth reading cashed in gains, with a retreat in European stocks and the euro adding to selling pressure.
The metal hit a more than two-week high on Wednesday after data showed the U.S. economy unexpectedly shrank in the fourth quarter, holding those gains after the Federal Reserve pledged to maintain a monthly $85 billion bond-buying program.
Its failure to rise further as a rally in stocks and the euro ran out of steam prompted selling.
"Once again (there was) not enough follow-through buying and intraday traders took profits," VTB Capital analyst Andrey Kryuchenkov said. "We failed to breach $1,680 while the Federal Open Market Committee offered little new."
"There is still not enough physical buying... and investors remain very cautious," he added.
The euro halted its rally, falling below a 14-month peak against the dollar, while European shares slipped for a second day as weak German retail sales and poor earnings at its biggest bank unnerved investors.
Usually, ultra-loose monetary policies lend support to gold. Previous rounds of Fed asset purchases drove down interest rates and weakened the dollar as well as spurring rallies in stocks and prompting some to turn to gold as an inflation hedge.
Analysts said that the market had already priced in that it would be premature for the U.S. central bank to discuss abandoning the quantitative easing programme and that the reaction to the FOMC statement would be muted.
Focus on U.S. Labor Data
Investors are now waiting for nonfarm payrolls data on Friday for a close look at the U.S. labor market. Economists surveyed by Reuters expect steady hiring from employers in January, helping unemployment to stand unchanged from a month earlier at 7.8 percent.
"The intense focus on employment means that this Friday's report remains crucial in forming market expectations on future policy," UBS analyst Joni Teves said in a report. "Some adjustments to positioning are likely to emerge heading into tomorrow."
Gold is still facing strong resistance at $1,700, which it failed to breach despite repeated attempts earlier in the month, analysts have said.
In the physical market, gold purchases lost steam this week as stockpiling in China and other Asian markets ahead of the Lunar New Year drew to a close and as Indian buyers remained on the sidelines, with ample inventory in hand.
The most active gold contract on the Tokyo Commodity Exchange rocketed to a record high after Prime Minister Shinzo Abe called on Japan's central bank to ease policy more aggressively.. TOCOM's December contract marked 4,944 yen a gram, with prices gaining 6 percent since the start of the year on a weakening yen.
Spot silver followed gold's movements, losing about 2.5 percent to hover near $31.36, after a 2.7 percent rise to a session high of $32.23 the day before.
The more industrial precious markets are also monitoring global economic data, which should give clues on future demand from the important automotive sector.
"There is some profit-taking in the platinum group metals and the attention now turns to the Chinese PMI data to be released overnight and tomorrow's employment figures in the United States," Fertig said.
"But platinum and palladium will outperform gold this year on stronger fundamentals," he added.