Gold fell in choppy trade on Thursday after the European Central Bank held off flagging an imminent cut in interest rates, deflating an earlier rally in assets seen as higher risk, such as equities and the euro.
Spot gold was at $1,634.24 an ounce at 1355 GMT, 0.4 percent below levels at which it traded late in New York on Wednesday but off an earlier high of $1,654.55.
This week's firmer tone to equities has alleviated some earlier forced gold selling to cover losses on other markets, though it has also dampened some appetite for gold as gains in other markets divert investment from the precious metal.
The whole gold market hinges on the investor enthusiasm and that has taken big backward step, said Nick Moore, an analyst at RBS Global Banking & Markets. Investors have got other places to fish at the moment, and gold isn't the default option that it has been.
The ECB kept benchmark rates on hold on Thursday, and said it will start buying covered bonds again. Bank chief Jean-Claude Trichet said the ECB will spend 40 billion euros over a 12-month period from November.
This disappointed some market watchers who had expected the bank to give stronger hints that a rate cut was imminent. European shares pared gains after the press conference, while the euro slipped versus the dollar.
We are disappointed that they didn't take this opportunity to cut rates, and that is a headwind still for the euro zone, said Moore.
Gold saw its biggest decline in nearly three years last month as pressurised selling to cover heavy stock market losses pulled prices more than 20 percent from record highs and prompted a period of intense volatility.
Concerns over the outlook for the euro zone's stubborn debt crisis were a key factor pushing the precious to a record $1,920.30 an ounce last month.
It is extremely hard to see where the solution (to the crisis) will come from, said VM Group analyst Carl Firman.
I think (the euro zone authorities) will be forced into a solution, but the volatility is based around whether it will be sufficient, or another stop-gap.
U.S. gold futures GCv1 for December delivery were down $3.20 an ounce at $1,638.00. Sterling priced gold rose 2 percent to 1,082.04 pounds an ounce after the Bank of England announced a second round of quantitative easing.
VENEZUELA REPATRIATES GOLD
Venezuela's central bank chief said it will begin repatriating its gold reserves from Western nations by mid-November. President Hugo Chavez announced in August that the nation would bring home almost all its $11 billion in gold reserves held abroad.
London clearing house LCH.Clearnet said on Thursday it will accept gold bullion as collateral by the end of this month, subject to regulatory approval.
Oil pared earlier gains to fall by more than half a percent to $102.14 a barrel, while base metals rose strongly as stock markets rebounded.
Other precious metals rose, with silver rising 1.7 percent to $30.92 an ounce. Spot platinum was flat at $1,488.49 an ounce, while spot palladium was up 2.3 percent at $583.72 an ounce.
While Chinese appetite for gold appears to be little affected by the holidays, platinum interest out of China has been sorely lacking, said UBS in a note on Thursday.
The lack of physical purchases could not have come at a worse time, given the heaviness across industrial metals and among risk assets in general, it added.
This has aggravated platinum's widening discount to gold, the platinum:gold ratio falling to fresh multi-decade lows mostly under 0.90 over the past couple of days. This trend is likely to continue given the lack of clear drivers that could spur PGM demand in the near term.