Gold dropped on Friday after rallying the previous day on the shooting down of a passenger plane in eastern Ukraine, but traders said interest in bullion will be quick to rise again if geopolitical tensions heighten.
Seen as a hedge against risk in times of uncertainty, bullion jumped 1.5 percent on Thursday as investors bought back their bearish bets in the metal and sought shelter from further turmoil in equities after the Malaysian airliner news.
On Friday, no concrete measures had yet been taken by world leaders even though they called for a rapid investigation of the jetliner's downing and justice for nearly 300 deaths in an incident that could mark a pivotal moment in deteriorating relations between Russia and the West.
"Gold's selling off because it doesn't seem like the situation is escalating yet,'' said Phillip Streible, senior commodities broker at RJ O'Brien in Chicago.
"But gold prices could definitely shoot up if geopolitical tensions rise further because of this,'' he said. Analysts said bullion prices should also benefit from
Israel's intensifying ground offensive into Gaza against Hamas militants who fired hundreds of rockets into Israel.
Chart: Precious Metals
Spot gold slipped 0.5 percent to $1,313 an ounce. U.S. gold for August delivery fell $7.40 percent to settle at $1,309.40, with trading volume on track to finish in line with its 30-day average, preliminary Reuters data showed.
In a measure of investment sentiment, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 2.69 tonnes to 803.34 tonnes on Thursday.
--By Reuters. For more information on commodities, please click here.