Gold fell on Thursday, acting more like a risk asset than a safe haven investment, and influenced by pessimistic expectations for a European Union summit that is unlikely to yield the magnitude of measures needed to tackle its debt crisis.
The EU's two-day leaders' summit is expected to produce a broad roadmap for fiscal, financial and political union and may agree a package of growth-boosting measures.
But Germany's Chancellor Angela Merkel poured cold water on proposals backed by France for euro zone countries should assume joint liability for each other's debts.
Spot gold fell to $1,568.80 an ounce by 0630 EDT from $1,574.40 late on Wednesday. Wider markets reflected the dim mood, with the euro hitting a three week low and shares down.
After a sizzling 11-year bull run, bullion is heading for its largest quarterly fall in eight years and is almost flat on the year to date.
The market has seen its prized safe-haven status eroded by the metal's increasing inclusion into the wider commodity complex, with downward pressure building after the U.S. Federal Reserve's decision to take only a modest monetary step to boost its economy.
There's no semblance of a safe-haven at the moment but as the price goes lower that bid does come back as you maybe get some renewed investor interest - sovereign wealth funds and central banks looking to nibble away and even some physical buying, SocGen analyst Robin Bhar said.
For the moment people want liquidity so they are selling gold, he added.
Wall Street investment bank Morgan Stanley on Thursday lowered its precious metals price forecasts for 2012 through 2014, saying the move was in line with the bank's cut in its global commodity price forecasts.
Gold had hit a record $1,920.30 an ounce in September 2011, when investors turned to the metal as a safe haven as Europe's debt crisis built. Sentiment has since evaporated, leading the market to its lowest in more than four months at $1,527 in May.
These reforms and relief efforts for troubled governments are doomed to fail, and it would be better for these states to radically restructure sovereign debt now and exit the euro, said Peter Morici, an economist at the University of Maryland.
Continuing the charade that their situations can be saved will only make the pain worse later.
The physical market was deserted ahead of the summit, with premiums for gold bars in Singapore unchanged at between 50 and 70 U.S. cents an ounce to spot London prices, and 70 cents and $1 in Hong Kong.
Weaker local currencies are weighing on gold demand from India, the world's largest consumer of the precious metal, and Indonesia, another leading Asian buyer, as traders also favor cash on concerns over a deterioration in the euro zone crisis.
Japan's exports of gold plunged to a 15-month low in May to 2.79 tonnes, down 67 percent from a year ago, as sales of gold bars and jewelry by consumers fell sharply after prices eased, resulting in a steep fall in gold scrap.