Gold prices eased for a third session on Monday as stock markets and cyclical assets such as industrial commodities continued to recover from a rout they suffered early last week, diverting investment away from the precious metal.
Gold hit a record $1,813.79 an ounce on Thursday and posted its biggest weekly gain since April 2009 as European stock markets fell to two-year lows, hit by concerns over euro zone debt levels. Investors flocked to gold as a haven from risk.
A reversal in appetite for assets seen as higher risk has led the precious metal to retreat, however. Spot gold was down 0.6 percent at $1,736.15 an ounce at 1147 GMT.
"As financial markets calm, further (consolidation) is likely for gold," said Commerzbank analyst Daniel Briesemann.
"There are some further data points this week out of the United States later ... we have to wait and see how that data will come in. If it disappoints, that might be a reason why the gold price goes up again," he added. "(And) the debt crisis in the euro zone is far from over."
European equities extended Friday's gains on Monday, benefiting from economic data and technical buying after key stock indexes became oversold. Their rise helped depress the cost of insuring Italian and Spanish debt against default.
Oil and base metals also steadied, supported by positive data from Japan and the United States, which posted strong retail sales numbers on Friday, helping allay fears an economic slowdown would hurt demand for raw materials.
Nonetheless, concerns remain that the U.S. recovery is flagging after weak consumer confidence numbers on Friday, while worries persist over sovereign debt in the euro zone and the prospect of rising inflation in Asia.
"Related uncertainty in financial markets, whether from the growth outlook or the ongoing sovereign debt crisis, is expected to remain a benefit to perceived safe-haven commodity assets, of which we believe gold is the stand-out exposure," said Morgan Stanley in a note.
U.S. gold futures for August delivery were down $3.70 an ounce at $1,738.90.
UNCERTAINTY BENEFITS GOLD
World Bank Chief Robert Zoellick said on Sunday the loss of market confidence in economic leadership in the United States and Europe, coupled with a fragile economic recovery, have pushed markets into a new danger zone.
He said uncertainty about the role of currencies was driving financial markets towards the Australian dollar, the Swiss franc and gold.
Reuters calculations based on data from the U.S. Commodity Futures Trading Commission showed big speculators slashed bullish bets in U.S. commodity markets by a massive $21 billion in the week to Aug. 9, selling heavily into a major gold rally and cutting net long positions to the lowest in a year.
Meanwhile, holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust , declined by nearly 50 tonnes between Monday and Friday last week.
The gold market is awaiting U.S. data on Monday that will show changes in investment holdings by hedge funds and institutional investors in the second quarter. All eyes will be on John Paulson, the biggest holder of the SPDR Gold Trust.
Among other precious metals, silver was up 0.2 percent at $39.06 an ounce. Data showed holdings of the world's largest silver-backed ETF, the iShares Silver Trust dropped 0.7 percent to 9705.90 tonnes on Friday.
Meanwhile spot platinum was down 0.3 percent at $1,789.49 an ounce, while spot palladium was up 1.5 percent at $754 an ounce.
Platinum prices have risen back above those of gold, having traded at a discount last week for the first time in 2-1/2 years last week. However, any fresh rally in gold prices could put the yellow metal at a premium once again.