(REUTERS) -- Gold eased on Thursday, under pressure from a decline in the euro ahead of a rate decision from the European Central Bank, while concerns about Spain's ability to finance itself simmered after yields shot up at a debt auction.
The ECB meets in Barcelona to discuss monetary policy and is expected to resist pressure to do more to fight the debt crisis by maintaining its bond-buying programme to help Spain, which has fallen into recession.
Spain attracted solid demand for its three- and five-year bonds at auction, but its borrowing costs jumped, reflecting investors' concern about Madrid's ability to finance itself and avoid a more protracted economic slowdown.
Gold has fallen by about 1 percent so far this week, having dropped for three out of the last five weeks, prompting shorter-term speculators and longer-term investors to curtail their holdings of the metal both in thefutures market and in exchange traded funds (ETFs).
Spot gold was down 0.4 percent on the day at $1,646.50 an ounce by 1145 GMT, having declined by 1 percent so far this week.
Most-active U.S. June futures were down 0.4 percent at $1,647.10 an ounce.
There has been a drop in ETF holdings and the more short-term investors seem to have withdrawn from the market somewhat, Commerzbank analyst Daniel Briesemann said.
Besides the firmer U.S. currency, the high correlation of gold to riskier asset classes is probably the most important factor putting pressure on prices right now, he said.
Holdings of gold in the world's largest ETFs have fallen by nearly 1 million ounces since hitting a record high of 70.89 million ounces on March 16.
ETFs have lost 576,575 ounces of metal over three consecutive months, marking their longest string of outflows since early 2010, when holdings fell by 1.88 million ounces in three months.
The euro was down slightly after Spain sold 2.5 billion euros in three- and five-year bonds at auction, at the top end of its targeted amount, although yields rose sharply from the last sale of debt of this maturity.
Gold usually trades inversely to the U.S. currency and in tandem with the euro as a decrease in the value of the single European currency makes it more profitable for euro-based investors to sell gold in exchange for dollars.
This correlation between gold and the euro/dollar exchange rate has softened in the past few weeks, reaching its least positive in almost a month, at +48 percent, from a four-month high of around +69 percent two weeks ago, meaning gold is now less likely to move perfectly in sync with the euro.
Gold priced in euros was down 0.2 percent at 1,253.08 euros an ounce and is currently little changed on the week, a better performance than dollar-denominated bullion.
Overall ... I'm feeling a bit bearish today, which worries me slightly, seeing as we are near the lows again, but the market feels heavy and in the absence of any positive news I think we can slip, David Govett, head of precious metals at Marex Spectron, said.
However with plenty of releases today, it will pay to be quick to get in and out if necessary.
Physical demand for gold from top consumers in Asia has been restricted by the brief rally in the price towards $1,670 an ounce earlier this week, while a weakening in the rupee rate dampened consumer off-take in India, the world's largest bullion buyer.
In other precious metals, silver was down 0.7 percent at $30.43 an ounce. Platinum was down 0.3 percent on the day at $1,552.74 an ounce, while palladium traded down 0.7 percent at $661.25 an ounce.