Gold prices fell below $1,190 an ounce in Europe on Thursday as investors awaited the outcome of European bank stress tests at the end of the week, with a majority of institutions expected to pass the tests.
Spot gold was bid at $1,186.05 an ounce at 0833 GMT (4:33 a.m. EDT), against $1,191.80 late in New York on Wednesday. U.S. gold futures for August delivery fell $6.00 to $1,185.80.
The European Union is looking at whether some banks need to raise capital as it moves to dispel concerns about weakness in the sector. Results of the stress tests, which will assess how banks will fare if economic conditions worsen, are due on Friday.
On the gold market, as a lot of the bids back in June were primarily on the back of worries about the banking crisis in Europe, so there has been a lot of noise about the stress tests, said Saxo Bank senior manager Ole Hansen.
It seems most banks are going to pass, and that is removing some of the safe-haven support we've seen previously.
A retreat in concerns over the health of the European financial sector has allowed prices to slide back from the record highs at $1,264.90 an ounce they hit in June. An attempted move back up to $1,200 was short-lived on Wednesday.
The way we got rejected yesterday at $1,200 indicates that there are sellers out there who are looking for an opportunity to reduce exposure, said Hansen.
On the wider markets, European shares turned positive on Thursday as strong corporate earnings reports offset earlier weakness after U.S. Federal Reserve Chairman Ben Bernanke gave gloomy comments on the U.S. recovery.
The dollar fell versus the euro after Bernanke said the U.S. economic outlook was uncertain. He will give further testimony before the House Financial Services Committee on Thursday.
His comments on Wednesday knocked stocks lower and also undermined sentiment toward gold. HSBC analyst James Steel said his comments indicated potential deflation.
Gold sank in after-hours trading as Mr. Bernanke acknowledged the economic outlook was 'unusually uncertain', he said. This reinforced sentiment that deflationary forces were building, thus prompting gold sales.
Bernanke's comments also knocked interest in industrial commodities, contributing to a slip in oil and copper prices early on Thursday. Prices of both later bounced back in line with a recovery in stock markets, however.
From a technical perspective, the short-term outlook for gold is relatively neutral after recent losses, analysts who study charts of past prices moves said.
Trendline support from 2008 is closing in near $1,175 and, against here, we are looking for a bounce, said Barclays Capital in a note.
However, to suggest a stronger base, we prefer to see a meaningful recovery through trendline resistance at $1,205.
Among other precious metals, silver was at $17.67 an ounce against $17.77, platinum at $1,507.75 an ounce against $1,521, and palladium at $444.05 against $449.50.
In supply news, the world's number three platinum producer Lonmin (LMI.L) said its third-quarter refined platinum sales nearly halved following the closure of its main furnace, but reiterated full-year sales guidance.
(Reporting by Jan Harvey; Editing by Anthony Barker)