Gold fell for the fifth straight session on Wednesday, hitting a four-week low below $1,400 as the dollar strengthened to a six-week high versus the euro, clouding the metal's already weak technical picture.
The metal extended losses after the weekly U.S. EIA crude inventory data sent crude oil prices lower, denting bullion's appeal as a hedge against inflation, traders said.
Spot gold dropped 2.1 percent lower at $1,395 per ounce
Analysts expect the fall below the psychologically significant $1,400 level could be a trigger for further heavy selling and might retest two-year lows of $1,321.35 an ounce hit on April 16.
A fifth consecutive daily fall for bullion would be its longest run of losses since January 2011. It has fallen around 15 percent so far in 2013 after gaining for the past 12 years.
U.S. gold futures fell more than 2 percent to settle $28.30 lower at $1,396.20 per ounce.
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"The stronger dollar is weighing on gold prices, exacerbating the weak technical picture," Commerzbank analyst Carsten Fritsch said. "Fundamentals haven't changed, we still have low investment interest and benign inflation risks."
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The dollar rose to a six-week high against the euro due to a surprisingly large contraction of the euro zone economy, but pared gains after data showed manufacturing activity in New York state contracted in May and U.S. producer prices recorded their largest drop in three years in April.
The market is now likely to turn its attention towards U.S. inflation data, scheduled for release on Thursday, as well as the country's weekly jobless claims.
As a gauge of investor sentiment, holdings at SPDR Gold Trust, the largest gold-backed ETF, were unchanged at 33.8 million ounces on Tuesday, but still within sight of their lowest since March 2009 hit earlier.
India Restricts Gold Imports
Gold buying in India came to a halt as the country's central bank restricted imports after a surge in buying in April sent the trade deficit to $17.8 billion for the month, up more than 72 percent from March.
India's gold and silver imports surged 138 percent on the year in April as customers took advantage of lower prices, increasing pressure on the current account balance and limiting the space for monetary easing.