Gold Drops Below $1,650, Focus Shifts to Equities

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Gold fell below $1,650 an ounce on Wednesday after data showed disappointingly small growth in U.S. retail sales in January, while some investors stayed at the sidelines ahead of a G20 meeting later this week, which is expected to set the tone for the gold trade.

China's week-long Lunar New Year holiday also curbed interest in the physical market, traders said.

Analysts said that some investors turned their attention to Wall Street and away from gold and other commodities after the benchmark U.S. equities index S&P 500 rose to its highest intraday level since Nov. 2007.

"More money is piling into the equities and real estate as the economy is getting better. It doesn't bode well for gold which is not rising with the stimulus programs in China and Japan," said Bruce Dunn, vice president of trading at precious metals dealer Auramet.

Spot gold last fell 0.5 percent to about $1,642 an ounce. U.S. gold futures settled down $4.50 at $1,645.10 an ounce, with trading volume at 30 percent below its 30-day average, preliminary Reuters data showed.

Gold suffered technical selling pressure this week, with prices sliding to Tuesday's one-month low at $1,638.82.

The Commerce Department said on Wednesday U.S. retail sales barely rose in January as tax increases and higher gasoline prices restrained spending, setting up the economy for only modest growth in the first quarter.

However, Howard Wen, metals analyst at HSBC, said that uncertainty over a series of U.S. automatic spending cuts and resurgent physical demand after the Lunar new year should underpin gold.

Silver last dropped 1 percent to below $31 an ounce.

G20, Currency Movement Eyed

Analysts said they expect prices will edge higher in coming sessions on investor short-covering before the Group of 20 summit.

"Although people are not expecting anything dramatic to be said at the G20 meeting, there is still some uncertainty, which may see short-term investors cover their short positions in coming sessions," Societe Generale analyst Robin Bahr said.

G20 finance ministers and central bank governors are set to meet in Moscow on Friday, with negotiations around competitive currency policies likely to dominate.

(Read More: Currency War? Here's How to Hedge It With Gold)

Platinum group metals (PGMs) continued to outperform gold and silver, with palladium briefly hitting a 17-month high on supply worries and demand hopes before retreating.

Palladium last fell 0.5 percent to $765 an ounce. Earlier in the session, it hit $775, its strongest since Sept. 5, 2011.

Platinum last edged up 0.2 percent to $1,717, still within sight of a 17-month peak struck last week.

With a 12 percent gain, platinum is the best performer this year so far, compared with a 10 percent increase for palladium and a nearly 2 percent fall in gold.