Gold fell more than 1 percent on Friday as investors quickly sold to raise cash to cover margin calls in the lower equity markets after Fitch downgraded the credit ratings of Spain and Italy.
Despite Friday's pullback, gold is on track to notch its first weekly gain in a month. Bullion this week has largely risen in tandem with risk assets, and the safe-haven buying that helped the metal's three-year rally was absent.
Gold climbed with Wall Street in early trade after a better-than-expected U.S. nonfarm payrolls report eased recession fears.
However, traders said that bullion's fundamentals remained unchanged as the mildly positive jobs data failed to change investors' view that the Federal Reserve must do more to spur a stronger recovery.
When people need money to answer margin calls, gold will always suffer from the liquidity bids in other markets. I don't know if we have seen the bottom put in for gold after this week's reversal, said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital, which oversees $17 billion in assets.
Gold fell 1.1 percent to $1,631.69 an ounce by 1:05 p.m. EDT (1705 GMT), having traded as high as $1,665.99 earlier.
The price of gold is poised to post a 0.5 percent gain for the week, its first weekly gain in five weeks, helped by better physical demand as the metal continued to cover after its 20 percent correction from its record of $1,920.30 set in early September.
U.S. December gold futures were down $19.40 at $1,633.80. Trading volume has been thin in the second half of the week, suggesting recent gains could be short-lived.
Silver was down by 2.9 percent at $30.98 an ounce.
Following an outflow of nearly half a million ounces of gold from global exchange-traded funds in September, ETFs have recovered nearly a quarter of that metal as investors have bought at lower levels.
In platinum group metals, platinum fell by 1.2 percent at $1,487.49 an ounce, and palladium dropped 2.9 percent to $584.75.