Gold prices were down 1 percent in Europe on Wednesday after a volatile session in Asia as skittish investors cashed in gains after the precious metal's rally to record highs, though concerns over euro zone debt still underpinned the market.
Prices dropped $40 in ten minutes overnight, with traders attributing the fall to heavy selling of Comex gold futures. The market traded as low as $1,826.18 an ounce, nearly $100 below Tuesday's record high.
By 0903 GMT (5:03 a.m. ET), spot gold was down 1.1 percent at $1,843.50 an ounce. It rallied to a record $1,920.46 a day ago, but dropped after the Swiss National Bank intervened to weaken the franc, shaking up financial markets.
People are just trying to balance their books a little bit. There may be some disappointed liquidation in gold, but in the cold light of day the Swiss action can't be considered as negative for gold, said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
The market is much better balanced than it has been for a while, but we will have to see how it goes. People are going to be a little bit cautious after the washout we had the other day. We've had two $100 days, so even though we have had some upside overnight, people are not going to throw money at gold.
Support from current levels is likely to come from the euro zone debt crisis. The bloc's most indebted nations are struggling to convince investors of their commitment to reduce debt, as Germany, the euro zone's biggest economy, faces opposition to further aid.
In a closely watched decision, Germany's Constitutional Court on Wednesday rejected a series of lawsuits aimed at blocking Germany's participation in bailout packages for Greece and other euro zone countries.
It said however that parliament must have a bigger say in future rescues, which could further slow down Europe's response to the debt crisis.
The news helped assets seen as higher risk to rise, briefly lifting the euro against the dollar but pressuring German Bund futures. European shares rose sharply, bouncing from a two-year closing low. .EU
DEBT CONCERNS SIMMER
Nonetheless ongoing concerns over euro zone debt and Tuesday's news from Switzerland are likely to lift gold in the longer term while pressuring so-called higher-risk assets, analysts said.
Efforts to dampen currency appreciation mean gold moves up the pecking order of preferred safe havens, said UBS in a note. This is crucially important given that safe havens are currently sought as alternatives to equities and other assets while macro concerns and European sovereign issues prevail.
Now that the SNB has entered the intervention arena, FX markets are on high alert for the BoJ to follow suit. So in theory, gold should be a considerable beneficiary ahead.
In supply news, Kazakhstan's central bank said on Wednesday it would be buying up the Central Asian nation's entire gold bullion output until at least 2014-15 to ease its exposure to the sagging dollar.
According to metals consultancy GFMS, Kazakhstan was the world's 20th largest gold producer last year, with output of 26.9 tonnes. It plans to boost output this year to 33 tonnes.
Among other precious metals, silver was down 0.5 percent at $41.40 an ounce, spot platinum was down 0.6 percent at $1,835.24 an ounce, and spot palladium was up 0.3 percent at $747.47 an ounce.
Palladium, the most industrial of the main precious metals, is still this year's worst performer among them, currently down 6.7 percent compared to a 3.7 percent rise in platinum prices and gold's 33 percent appreciation.
The white metal has come under heavy pressure from falling appetite for raw materials, as well as concerns over the outlook for car sales and speculation that its sharp price run higher of recent years had become overdone.
Prices have been buffeted by risk appetite, but now have the potential to recover, said Standard Chartered in a note.