Gold fell almost 1 percent on Friday and posted its second consecutive monthly decline on investor worries that the U.S. fiscal crisis might lead to a recession and on end-of-month profit-making which prompted a flurry of sell orders.
Bullion's drop accelerated after Speaker of the House John Boehner said U.S. lawmakers from his Republican Party and Democratic President Barack Obama are in a stalemate over a budget deal needed to avoid a $600 billion "fiscal cliff" of automatic tax hikes and spending cuts.
Some institutional investors lightened their gold holdings, worried that failure to reach a budget deal could hurt economic growth and undermine gold's appeal as an inflation hedge.
"There is a significant amount of industry selling in anticipation of higher taxes related to the fiscal cliff," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
"On the other hand, there is a fair amount of retail buying, but in this case Wall Street tends to win,'' McGhee said.
Spot gold was down 0.8 percent at $1,711.30 an ounce. It notched a 2.3 percent weekly drop, which would be its biggest weekly decline since June. It also notched a 0.4 percent monthly loss for November, after falling about 3 percent in October.
U.S. COMEX gold futures for February delivery settled down $16.80 at $1,712.70. February becomes the benchmark contract after December's first-notice day on Friday.
Trading volume was around 140,000 lots, about 25 percent below its 250-day average, preliminary Reuters data showed. Turnover was sharply lower after it hit a record high at 486,315 contracts on Wednesday, according to CME data.
Silver fell 2.7 percent to $33.29 an ounce.
Gold Coin Sales Rise in November
In the retail sector, physical demand appeared strong. November sales of U.S. American Eagle gold coins are set to be the strongest in 14 years as uncertainty surrounding the U.S. fiscal crisis and the presidential election triggered safe-haven buying, dealers said.
Holdings of SPDR Gold Trust GLD, the world's biggest gold-backed exchange-traded fund, stood at a record high of 1,347 tons, up nearly 11 tons in its fourth consecutive month of gains.
Global gold demand in 2013 should be led by further strength in Chinese demand and a recovery in India, helping the precious metal continue its bull run into its 13th year, the industry-backed World Gold Council said on Friday.
Among platinum group metals, concerns about supply and technical buying helped send palladium to a 2-1/2 month high of $689 on Thursday.
Norilsk Nickel, the world's largest producer of palladium and nickel, expects the palladium market to remain in a deficit for the next several years, largely due to a near depletion of Russian state supplies.