Gold prices held steady on Thursday, as optimism for a solution to the Eurozone crisis underpinned sentiment, while tight physical supply in Asia continued to lend support.
But failure to break key technical levels triggered some selling and pushed prices down nearly half a percent.
Gold is likely to remain in range trade as everyone is waiting for the euro zone to reveal how it will solve the debt crisis by the end of the month, said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
Poon expected gold to move sideways between $1,650 and $1,730 until the market sees a clear direction.
Investors are watching a meeting of G20 finance ministers and central bank governors in Paris this weekend, after Germany and France pledged to unveil new measures to solve the debt crisis by the end of the month.
The pledge, as well as agreement by Slovakia's political parties to ratify the expansion of the euro zone's rescue fund, has helped take the edge of widespread anxiety about contagion in financial markets.
Spot gold edged down 0.3 percent to $1,672.39 an ounce by 0643 GMT, off a 2-1/2-week high of $1,691.6 hit in the previous session.
U.S. gold lost half a percent to $1,674.40.
SLOWING GLOBAL ECONOMY CONCERNS
But the concerns about a slowing global economy still hang over the market.
Asia's economies are prone to near-term risks posed by Europe's debt crisis and a U.S. slowdown, the International Monetary Fund has warned.
Gold, typically seen as a safe haven during times of economic and political turmoil, has not behaved like one recently. Instead it has moved in tandem with riskier assets such as equities, as investors sometimes have to sell off profitable gold positions to cover losses elsewhere.
Fundamentals have been more pertinent to bullish gold, but positioning of funds in market turbulence means that gold is not going to roar back any time soon, said a Singapore-based trader.
The failure to break above $1,700 has prompted some selling, he added.
PHYSICAL SUPPLY STILL TIGHT
Buying interest in the physical market eased as spot gold prices rose more than 2 percent so far this week, dealers said.
We saw some light selling yesterday evening, said a Singapore-based dealer. The supply is still tight, and we need the market to sell back to bring premiums down.
Gold premiums in Singapore were about $2 an ounce above spot prices, she said.
Poon of Heraeus in Hong Kong expected the supply tightness over the past few weeks to ease, as more shipments arrive in the bullion trading hub.
Physical buyers are eyeing $1,650 as an attractive level to enter the market, he said.
Other precious metals also held steady. Spot platinum was little changed at $1,544.74 an ounce, after three days of consecutive gains.
Spot palladium lost 0.8 percent to $599.97. It is down nearly 25 percent so far this year as the worst performer in the precious metals complex.
Although underlying demand from the auto sector has shown continued improvement over the past three months in key regions, the lack of investment interest has sunk prices of the metal, which nearly doubled last year, said Barclays Capital analysts.
While palladium's fundamentals remain intact, disinvestment has proved to be a key swing factor as concerns over demand weigh, they said in a research note.
In turn, prices need investment flows to stabilize before they can look to their fundamentals for support.