NEW YORK (Reuters) - Gold prices fell for a second day on Friday as a stronger appetite for riskier assets such as equities and an improving economic outlook diminished safe-haven buying, more than offsetting a weaker dollar.
Bullion notched a third consecutive weekly loss, its longest since July, which called into question the metal's lengthy bull run due to signs that the economic recovery is taking hold and as fears about an European debt crisis have subsided for now.
Gold prices fell on Friday as safe-haven demand faded, a day after the metal was pushed down nearly 2 percent to two-month lows as investors sold bullion together with equities and commodities like crude oil and copper that are perceived as riskier.
"The German IFO today is an indication of ongoing strength and an improvement in the EU economy. The idea that the U.S. and European economies are doing better and less sovereign debt concerns are weighing on gold investor psychology," said Bill O'Neill, a partner in commodities firm LOGIC Advisors.
German business sentiment rose to its highest level in 20 years in January, surging past economists' forecasts on a strong manufacturing sector. The bright European report followed a raft of strong U.S. economic data, including encouraging jobs and housing numbers on Thursday.
Spot gold fell 0.2 percent to $1,343 an ounce by 2 p.m. EST (1900 GMT). U.S. gold futures for February delivery settled down $5.50 at $1,341 an ounce.
Bullion hit a low of $1,337.50, their weakest price since November 18, as financial markets opened in New York. U.S. traders cited an increase in margin requirements for precious metals futures as a reason for the decline.
Silver inched up 0.2 percent to $27.53 an ounce.
The gold-to-silver ratio -- the number of ounces of silver needed to buy an ounce of gold -- rose back toward 50, its highest level since late November, as some traders believed gold is becoming increasingly expensive relative to silver.
Friday's turnover was modest as COMEX gold and silver futures volumes on the New York Mercantile Exchange were largely in line with their 30-day averages.
Analysts say outflows of money from products such as physically backed exchange-traded funds suggest investor appetite for gold is slackening after a run of firmer-than-expected U.S. economic data and as concerns over euro zone sovereign debt levels recede.
"There is a real lack of catalysts to provide any sort of support," said Macquarie analyst Hayden Atkins. "Day by day the data does seem to be supportive of the theory that activity is pretty good for now, and the expectation is growing that things will be OK through the year.
"There is nothing definitive either way to push it, and at the margins (investors) are maybe putting their money somewhere else, rather than putting it in gold."
Gold's slide was limited on Friday by a retreat in the dollar to two-month lows versus the euro, with the European single currency reaching its highest level since late November, helped by improving confidence in region.
Stock markets moved higher in both Europe and the United States as strong earnings from key U.S. companies lifted appetite for equities.
"Gold used to be a fear indicator, and, as this fear appears to be leaving the market, the gold price is under pressure," said Commerzbank analyst Eugen Weinberg.
Silver prices had earlier hit a seven-week low at $27.10 an ounce, pressured by a further outflows from the world's largest silver-backed exchange-traded fund, the iShares Silver Trust.
Holdings of the trust fell by just over 10 tonnes on Thursday, after recording their biggest one-day drop since late November in the previous session. It has seen outflows of more than 346 tonnes so far this year.
Investment demand was a major driver in silver's price gains of more than 80 percent last year.
Platinum rose 0.8 percent to $1,822.24 an ounce against $1,808.50 on Thursday, while palladium climbed 1.4 percent to $819.50.
Additional reporting by Jan Harvey in London; Editing by Walter Bagley