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Gold fell about 1 percent to its lowest in nearly a month on Tuesday on technical selling after prices broke below key support levels, but the dip may lure bargain hunters who expect the gloomy global economy to keep gold buoyant.
Gold broke below $1,710 an ounce and subsequently $1,705, key technical levels it had held since early November, which triggered stop-loss selling, traders said.
"The break probably will not last long," said a Sydney-based trader. "Funds are happy to buy on dips, and so will the central banks and the Chinese."
The prospect of continuously loose monetary policy around the world will provide support to gold, perceived as a hedge against inflation as a result of rampant cash printing by central banks.
In the latest easing move by central banks, Australia's central bank cut interest rates a quarter point to match a record low on Tuesday, stepping up efforts to safeguard the rich world's most resilient economy from the risk of recession as a mining boom peaks.
Spot gold fell nearly 1 percent to $1,698.3 an ounce, its lowest since Nov. 6, before recovering to $1,702.24 by 0649 GMT.
The most-active U.S. futures contract dropped as much as 1.3 percent to a near one-month low of $1,698.5, and stood at $1,703.
Technical analysis suggested that spot gold is poised to fall to $1,692 after breaking support at $1,707, said Reuters market analyst Wang Tao.
The slide the precious metals complex was eye-catching, compared to the performance of other markets. Asian shares slipped on an unexpected fall in U.S. manufacturing data, while the dollar index held near a one-month low.
A softer greenback usually boosts the appeal of dollar-priced commodities including gold, but traders said the stalemate in the U.S. budget talks has made investors hesitant to jump in.
"Gold is still under pressure despite the support from currency markets," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
"The physical market is quiet, there is some profit-taking, and we don't see fresh buying interest from the funds."
The "fiscal cliff", $600 billion of U.S. tax hikes and spending cuts to kick off in early 2013, threatens to push the world's biggest economy into a recession.
In other precious metals, spot platinum dropped to a one-week low of $1,585.20 an ounce before recovering to $1,588.49. Spot palladium, which rose for the past five weeks straight, fell 1.1 percent to $678, heading to its biggest daily decline in a month.
Recent car sales data have helped platinum group metals recently, which are used widely in producing exhaust-reducing catalysts.
U.S. auto sales in November raced to a five-year high for that month on a rebound from storm-ravaged October and the need to replace aging vehicles, leaving industry executives hopeful about 2013.
Last week, China's Ministry of Industry and Information Technology said the country's car sales and output will both exceed 19 million units this year. In the first 10 months of the year, total vehicle sales gained 3.6 percent on the year to 15.7 units.
Gold broke below $1,710 an ounce and subsequently $1,705, key technical levels it had held since early November, which triggered stop-loss selling, traders said.
"The break probably will not last long," said a Sydney-based trader. "Funds are happy to buy on dips, and so will the central banks and the Chinese."
The prospect of continuously loose monetary policy around the world will provide support to gold, perceived as a hedge against inflation as a result of rampant cash printing by central banks.
In the latest easing move by central banks, Australia's central bank cut interest rates a quarter point to match a record low on Tuesday, stepping up efforts to safeguard the rich world's most resilient economy from the risk of recession as a mining boom peaks.
Spot gold fell nearly 1 percent to $1,698.3 an ounce, its lowest since Nov. 6, before recovering to $1,702.24 by 0649 GMT.
The most-active U.S. futures contract dropped as much as 1.3 percent to a near one-month low of $1,698.5, and stood at $1,703.
Technical analysis suggested that spot gold is poised to fall to $1,692 after breaking support at $1,707, said Reuters market analyst Wang Tao.
The slide the precious metals complex was eye-catching, compared to the performance of other markets. Asian shares slipped on an unexpected fall in U.S. manufacturing data, while the dollar index held near a one-month low.
A softer greenback usually boosts the appeal of dollar-priced commodities including gold, but traders said the stalemate in the U.S. budget talks has made investors hesitant to jump in.
"Gold is still under pressure despite the support from currency markets," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
"The physical market is quiet, there is some profit-taking, and we don't see fresh buying interest from the funds."
The "fiscal cliff", $600 billion of U.S. tax hikes and spending cuts to kick off in early 2013, threatens to push the world's biggest economy into a recession.
In other precious metals, spot platinum dropped to a one-week low of $1,585.20 an ounce before recovering to $1,588.49. Spot palladium, which rose for the past five weeks straight, fell 1.1 percent to $678, heading to its biggest daily decline in a month.
Recent car sales data have helped platinum group metals recently, which are used widely in producing exhaust-reducing catalysts.
U.S. auto sales in November raced to a five-year high for that month on a rebound from storm-ravaged October and the need to replace aging vehicles, leaving industry executives hopeful about 2013.
Last week, China's Ministry of Industry and Information Technology said the country's car sales and output will both exceed 19 million units this year. In the first 10 months of the year, total vehicle sales gained 3.6 percent on the year to 15.7 units.
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