Gold prices steadied in volatile trade on Tuesday after briefly extending the previous session's 2.5 percent slide below $1,800 an ounce, as the dollar's gains versus the euro put fresh pressure on the precious metal.
The euro slipped against the U.S. currency as European shares fell to a two-year low for the second straight session, with investors worried that policymakers had no plan to stem the euro zone debt crisis.
Gold rose earlier along with stocks as reports that China could offer financial support to debt-laden Italy took some heat out of Monday's sell-off, but the assets' downward path later resumed.
Spot gold was flat at $1,813.10 an ounce at 1112 GMT, having earlier fallen as low as $1,798.75 and traded in a near-$40 range. It has dropped 2.7 percent this week after posting its biggest monthly gain since November 2009 in August.
You can hardly call (gold) a safe haven with those swings, said Saxo Bank senior manager Ole Hansen. Buyers still emerge on sell-offs, but it looks like the bullish investor has got to be a bit patient right now.
We have failed to make new highs despite the crisis intensifying over the last few days. (There) could be general risk reduction as banks are cutting/reducing lines to traders or profit is booked to offset losses.
Concerns over the ability of some euro zone economies -- chiefly Portugal, Italy, Ireland, Greece and Spain -- to manage their burgeoning debt helped drive gold prices to record highs above $1,920 an ounce earlier this month.
But the metal has faced headwinds around that level, twice failing to sustain a rise above $1,900 an ounce. Dollar strength has returned as a weight on gold after the currency has risen in line with the precious metal in recent years as both benefit from risk aversion.
A stronger dollar may make the journey north more of a struggle, said UBS in a report, noting that action by the Bank of Japan and Swiss National Bank to curb strength in the yen and franc meant the dollar is emerging as the last safe haven among the world's major currencies for risk-averse investors.
Clearly gold has opportunities here too, though a stronger dollar presents an obstacle in the very short term, it added.
PRICES HIT SUPPORT
Today's low near $1,795 is a key support level for gold, technical analysts at ScotiaMocatta said in a note, after the metal fell on Monday as traders cashed in gains to cover losses on other markets.
Below that $1,777 is the next key level, a breach of which will take prices right back to $1,704 an ounce, it added. Our inability to reclaim the 1,900 level has shifted the focus lower short term, it said.
Silver was flat at $40.19 an ounce.
Holdings of the world's largest silver-backed exchange-traded fund, the iShares Silver Trust, rose nearly 79 tonnes on Monday, their largest one-day inflow since August 23.
Spot platinum was up 0.4 percent at $1,807.49 an ounce, while spot palladium was up 0.8 percent at $708.47 an ounce.
In supply news, Zimbabwe and Zimplats, the local unit of the world's second-largest platinum producer Impala Platinum, said on Tuesday they had agreed to produce a revised plan for a law requiring mining firms to turn over a 51 percent stake to local blacks.
Zimbabwe is the world's third-largest primary platinum supplier behind South Africa and Russia, with output of 280,000 ounces last year, or nearly 5 percent of global supply.
The platinum to gold ratio continues to hold below 1, which was last seen in December (2008), said VTB Capital analyst Andrey Kryuchenkov in a note. At the moment, platinum remains one of the best fundamental picks assuming the double dip scenario is avoided and equity markets rally again.
Notably, global ETF holdings and CME net spec longs were hitting fresh record highs in platinum over the past week. Fundamentally, ongoing production constraints in South Africa and recovering automotive sector demand, as well as improving jewelry demand from Asia are all supportive.