NEW YORK Gold fell on Thursday as weaker U.S. equities and uncertainty over the commitment of Germany and France to battle the euro zone debt crisis prompted the bullion market to consolidate gains after its recent rally.
The metal declined as the dollar rose against the euro after Berlin and Paris, Europe's central powers, clashed over greater EU control of national budgets and other issues before a summit of the bloc's leaders.
Gold tracked the S&P 500 index .SPX, which fell after the number of Americans filing new claims for jobless benefits spiked last week. Earlier in the day, data showed China's economy slowed for a seventh straight quarter, even though other numbers pointed to a mild year-end rebound.
The gold market appears to have factored in optimism related to the U.S. Federal Reserve's monetary stimulus announced in September, analysts said. Gold was still $150 per ounce higher than its mid-August level despite a recent pullback.
"Without any other major drivers, the precious metals will continue to show weakness and test the downside" because the latest buyers might lack patience to wait for another bull run, said Carlos Perez-Santalla, a broker at brokerage PVM Futures.
Spot gold fell 0.4 percent on the day to $1,742.50 an ounce by 2:29 p.m. EDT (1829 GMT).
U.S. COMEX gold futures for December delivery settled down $8.30 an ounce at $1,744.70, with trading volume at 40 percent below average, preliminary Reuters data showed.
Open interest in gold futures fell 3 percent this week, a sign funds were liquidating positions and switching to better-performing assets such as equities, analysts said.
Gold's 30-day implied volatility fell to 13 on Wednesday, near a 15-month low.
The trading range is expected to be narrow this week with the COMEX November option expiring next week and significant open interest near its current level at $1,750 an ounce, TD Bank strategists said in a note.
Also pressuring bullion was a bearish call on crude oil by Goldman Sachs, one of the biggest banks in commodity trading. The firm has called an end to the oil price super-cycle, reversing years of bullish forecasts, citing a rise in U.S. and Canadian unconventional oil supplies.
Silver fell 1 percent to $32.83, tracking gold.
PHYSICAL DEMAND LAGGING
Analysts said physical demand was weaker than expected for the time of year, when the traditional Indian wedding season, the Islamic Eid al-Adha festival and the build-up to Christmas and Chinese New Year tend to ramp up bullion buying.
Demand from gold importers in India appeared to wane on Thursday as a weaker rupee drove up domestic prices in the world's largest gold buyer for the third consecutive session.
Among platinum group metals, platinum dropped 1.1 percent to $1,640.74, while palladium was up 0.8 percent at $643.50.
(Additional reporting by Clare Hutchison in London; Editing by Dale Hudson and Grant McCool)