Gold eased on Thursday as evidence that Europe's debt crisis has hurt economic growth knocked equities lower and the dollar firmed against a currency basket, but worries about the approaching U.S. 'fiscal cliff' underpinned prices.
Stock markets fell in Europe after a report showed economic growth in Germany, Europe's largest economy, cooled to 0.2 percent in the third quarter, while data showed the wider euro zone has slipped back into recession.
Losses in stocks helped push spot gold down 0.4 percent to $1,719.76 by 1145 GMT, while U.S. gold for December was down $10.10 an ounce to $1,720.00.
"You get periods of high correlation between risky assets, and this seems to be happening now," said Nic Brown, analyst with Natixis, referring to easing gold and equity markets. "There are times when gold is just another commodity."
Brown added however that concerns over the approaching U.S. "fiscal cliff" - a combination of government spending cuts and tax rises due in early 2013 - may lift gold's appeal as a safe haven if negotiations over how to tackle it are protracted.
"If... agreement looks less likely, I see risks to the upside in the gold price," he said.
President Obama said on Wednesday that Republicans would have to agree to raise taxes on the wealthy as the first step in a budget deal that would prevent a dysfunctional Washington from pushing the economy into recession.
Among other commodities, oil prices rose as violence in the Gaza Strip sparked worries about supply disruption. Hamas fired dozens of rockets into southern Israel and Israel launched numerous air strikes across the Gaza Strip as the military showdown lurched closer to all-out war.
Geopolitical tensions traditionally also lift gold, though their impact has been outweighed in recent years by macro-economic concerns. If the situation deteriorates, it could affect gold.
"An all-out war would trigger high oil prices leading to higher inflation and subsequently a return to recession," which would support gold, Saxo Bank vice president Ole Hansen said.
"In the short term, it could trigger a massive risk-off which... would hurt gold as the dollar would rally."
GOLD DEMAND FELL IN Q3
A report from the World Gold Council showed on Thursday that global gold demand dropped 11 percent in the three months to September from record levels seen in the same period last year, hurt by lower demand in China as its economy slowed, but with stronger Indian buying stemming a larger fall.
Gold prices in India, historically the world's biggest buyer of bullion, nudged down in line with spot prices on Thursday as the rupee firmed against the dollar, but dealers expect local prices to remain firm given the wedding season.
Global jewellery consumption dipped 2 percent to 448.8 tonnes, the WGC report showed, while coins and bar demand fell 30 percent. European investors, particularly in German-speaking markets, accounted for half of the 128.1-tonne drop in bar and coin demand.
The WGC's managing director for investment Marcus Grubb told the Reuters Global Gold Forum that he expects full-year buying to be lower than in 2011, though prices were seen holding firm.
"Last year demand was around 4,400 tonnes... but so far this year we are lower, mainly because of the bad first half in India," he said.
"We expect... we will see demand in tonnes down by 5-10 percent from 2011, but the price will stay at or above where we are now with quantitative easing, (the) U.S. cliff and debt ceiling, and the OMT (bond purchase plan) in euro zone, plus strong seasonal demand in India and China."
Among other precious metals, silver was down 0.4 percent at $32.53 an ounce. Platinum eased 1 percent to $1,567.75, while sister metal palladium was last at $627, down 1 percent.
The last of a wave of illegal strikes that have swept South Africa's mining sector ended on Thursday after workers accepted an offer from Anglo American Platinum Ltd AMSJ.J, the world's top producer of the precious metal.