Gold prices fell Wednesday as investors sold to raise cash, but bargain hunting and short covering pared the losses so the yellow metal ended the session just shy of its opening price.
Initially, gold followed European and U.S. equities down, but in the final hours of trading it recovered to nearly break-even.
Equity losses in Europe and the U.S with the corresponding drive to raise cash by selling gold followed a disastrous German government bond sale that indicated the Eurozone's sovereign debt crisis may now be affecting the continent's main economic engine.
Berlin tried to auction $8 billion in 10-year bonds but there were so few takers the Bundesbank had to buy up 39 percent of the offering.
It is a complete and utter disaster, Marc Ostwald, strategist at Monument Securities in London, told Reuters. This does not bode well, it is the worst of uncovered auctions that we've had this year and little wonder that the Bund sold off on the back of it.
In Europe, the FTSE 100 closed down 1.29 percent, Germany's DAX was off 1.44 percent and France's CAC 40 settled lower by 1.68 percent. In the U.S., the Dow Jones Industrial Average was down 1.5 percent, the Nasdaq Composite tumbled 1.79 percent and the S&P 500 lost 1.6 percent.
At first gold tracked stocks, falling 1.49 percent, but despite the trans-Atlantic equity damage it ended with a mere 0.4 percent loss as short covering and the lure of a bargain created resistance at $1,677.10.
Some players may be asking themselves if gold went too low, James Steel, HSBC senior vice president and metals analyst, said.
The gold price rebound came despite the dollar surging 1.12 percent to 79.32 -- well above the resistance level of 78.50 on the ICE U.S. Dollar Index. The euro tumbled to $1.33.
Technical factors also supported gold.
At least into mid-session December gold was able to respect the prior session's low and that in turn prompted some traders to suggest that the market had forged a quasi double bottom low, the CME Group said in a note.
Surprisingly, gold was able to shrug off a disappointing downward revision in U.S. GDP figures, perhaps because the Richmond Fed Manufacturing survey showed some improvement from the prior month's negative reading. It is also possible that the softer US GDP readings prompted some players to expect the Fed to become more openly supportive of the U.S. economy and that in turn might have provided gold with some fresh buying support.
Gold for December delivery fell $6.50 to close at $1,695.90 - a 0.4 percent decline -- while gold for immediate delivery rose 92 cents to $1,694.98.
Silver was off $1.07 to $31.88 - a 2.8 percent decline -- while silver for immediate delivery added 12 cents to $31.96.