Gold settled lower at $1,386 per ounce after it hit a four-week low on Thursday, declining for a sixth straight day for the first time in more than four years, as investors spooked by recent price falls favored other assets.
Prices touched a low of $1,369.29 an ounce, though they pared losses after downbeat U.S. economic data weighed on stocks and the dollar, both of which have hit significant highs this week.
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Traders said the fall below the psychologically significant $1,400 level in the previous session triggered heavy selling and that the metal might re-test two-year lows of $1,321.35 hit on April 16, when it recorded the worst daily loss for 30 years.
Rallying stocks have hurt bullion's appeal as an alternative investment this year, leading to hefty outflows from gold-backed exchange traded funds.
The largest, New York's SPDR Gold Trust, reported a further 4.5 ton-drop in its holdings on Wednesday to 1,047.14 tons, the lowest since March 2009.
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"We're seeing some of the pension funds selling via the ETFs, which is a bit of a worrying sign," Standard Chartered analyst Daniel Smith said. "At this point physical demand remains pretty strong, but it's not enough to offset that wider showing by investors."
Soros Fund Management LLC joined funds including Northern Trust and BlackRock in lowering its investment in the SPDR Gold Trust in the first three months of the year, a SEC filing showed on Wednesday.
Gold investment nearly halved in the first quarter as a brighter view of the U.S. economy prompted investors in the West to favour assets such as stocks over bullion, the World Gold Council said on Thursday.
Gold Premiums Rally in Asia
Lower gold prices have attracted physical buying in China. The world's second-largest consumer after India bought a large amount of gold on Thursday.
Premiums for gold bars rallied to all-time highs in Hong Kong and Singapore on Thursday after bullion's steepest drop since its April sell-off fuelled another round of buying, constricting supply. That did not counterbalance weaker investment demand, however.
"Physical demand had slowed somewhat recently with the result that ETF outflows could no longer be offset," Commerzbank said in a note. "For example, U.S. coin sales totalled 36.5 thousand ounces in the first half of May, more than 200,000 ounces having been sold in the month of April as a whole."
In other precious metals, silver was 0.8 percent higher at nearly $23 an ounce, having earlier touched its lowest level since April 16 at $22.09. The metal has fallen 5.2 percent so far this week, and is set for its worst weekly performance in a month.
Platinum fell 0.3 percent to almost $1,481 an ounce, but its premium over gold earlier reached its highest since August 2011 as South Africa's output worries continued.
Miners at number one platinum miner Anglo American Platinum will strike from Thursday evening over proposed job cuts, a union official said, driving its shares lower and sending the rand to a four-year low.
Palladium rose 1.7 percent to $737 an ounce.