NEW YORK/LONDON Gold prices fell on Wednesday, unwinding the previous day's advance to a two-week peak, after data showing weaker-than-expected U.S. manufactured goods orders and cautious comments from an ECB official spurred a flurry of selling.
Bullion lost ground with base metals, crude oil, equities and the euro after the report showing a moderate, though disappointing, gain in February U.S. durable goods orders ignited selling.
"There's some dollar strength, it's also a risk-off kind of a day. We're seeing a lot of commodities down and stocks are down," said Rick Bensignor, chief market strategist at Merlin Securities in New York.
Spot gold was down 1.3 percent at $1,658.30 an ounce by 2:50 p.m. EDT (1850 GMT), after hitting its lowest since March 23 at $1,654.50 an ounce. U.S. gold futures for April delivery slipped $27 to end at $1,657.90, a 1.6 percent fall.
On Tuesday, spot prices rose as high as $1,696.20 after the Federal Reserve suggested a continuation of easy monetary policy may be necessary to support growth and bring down unemployment.
Federal Reserve Chairman Ben Bernanke said on Tuesday it is too soon to declare victory in the U.S. economic recovery, warning against complacency in policymaking as the outlook brightens.
But gold's rally proved short-lived.
Merlin Securities' Bensignor cited the worse-than-expected durable goods orders report and Bernanke's comments for gold's reversal.
"Bernanke's speech is one of those things that has two sides. You could say lousy economic numbers are going to make him more likely to run stimulus. At the same time, lousy economic numbers are just that, and the market is reacting to them," the analyst said.
From a technical view, momentum sparked by expectations for further U.S. monetary easing faded after prices failed to breach key resistance at $1,700 an ounce.
"Notice how $1,700/1,690 held sturdy," VTB Capital analyst Andrey Kryuchenkov said. "(This is) not a massive pullback, $1,640 will certainly hold for now, but a tad more is possible."
Also pressuring gold were the dollar's gains on the euro as traders focused on comments from an ECB official warning about resolving the debt crisis. <USD/>
European Central Bank Governing Council member Jens Weidmann's cautious euro zone comments came before a meeting of European Union economic and financial affairs ministers in Copenhagen on Friday and Saturday.
Nonetheless, expectations for a continuation of super-loose monetary policy and ongoing official sector buying is supporting the medium-term outlook for gold.
"I have a positive view of gold from these levels," BNP Paribas analyst Anne-Laure Tremblay said. "Fundamentals are still supportive and we assume some form of monetary policy accommodation to take place in the United States by mid-year."
Asset returns in 2012: link.reuters.com/muc46s
Commodity returns in 2012: link.reuters.com/faz36s
Gold correlation with dollar: r.reuters.com/ryx52s
Goldman Sachs said in a research note that, as gold prices are closely linked to U.S. real interest rates, they may have been suffering from expectations for stronger growth.
"The gold market may have been expecting that real rates would soon be rising along with improving economic growth, leading to a sharp decline in net speculative length in gold futures," it said.
"As we look forward, our U.S. economists forecast subdued growth and further easing by the Fed in 2012, which should push the market's expectations of real rates back down near zero basis points and gold prices back to our six-month forecast of $1,840 an ounce," it added.
Physical gold demand has come under pressure this week from an ongoing strike among jewelers in India, the world's largest bullion consumer, who are protesting against a hike in import duty for bullion.
India's Finance Minister said on Tuesday the country will not cut import duty on gold, which it doubled to 4 percent this month, although it is considering jewelers' demands for the removal of a 0.3 percent excise duty on unbranded jewelry.
By late trade, silver was down 1.8 percent at $31.93 an ounce, spot platinum fell 1.2 percent to $1,627.38 an ounce, and spot palladium lost 1.9 percent at $640.38 an ounce.
Prices at 2:49 p.m. EST (1849 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US silver 31.816 -0.785 0.0% 14.0%
US palladium 646.35 -15.75 -2.4% -1.5%
Gold 1658.30 -21.74 -1.3% 6.0% Silver 31.93 -0.57 -1.8% 15.3% Platinum 1627.38 -20.50 -1.2% 16.8% Palladium 640.38 -12.12 -1.9% -1.9%
Gold Fix 1676.00 -1.00 -0.1% 6.4% Silver Fix 32.43 -58.00 -1.8% 15.1% Platinum Fix 1642.00 2.00 0.1% 18.9% Palladium Fix 651.00 3.00 0.5% 2.4%
(Reporting by Carole Vaporean; Editing by James Jukwey and Marguerita Choy)