NEW YORK/LONDON Gold closed lower on Wednesday, tracking the euro's declines against the dollar, after a tender for cheap European Central Bank loans failed to convince investors the new lending program would go far in easing Europe's massive debt problems.
Spot gold surrendered early gains to stand at $1,611.79 an ounce at 2:53 p.m. EST, well off an earlier high of $1,641.50 an ounce, and below its previous close at $1,614.79 an ounce. The precious metal is still up by more than 13 percent for the year.
U.S. benchmark gold futures for February delivery finished off $4.00 an ounce at $1,613.60.
European banks took 489 billion euros at the ECB's first ever offering of three-year funding, initially lifting hopes a credit crunch could be avoided.
Initially, gold prices rose as the tender lifted equities and the euro at the dollar's expense. But, the boosts were short lived, and all later lost ground as market participants viewed gains won earlier in the week in anticipation of the ECB tenders as somewhat overdone.
"Gold has been trading like a risk asset, along with other metals, and trading on the dollar-euro exchange rate," said Citigroup analyst David Wilson.
"The underlying issues, in terms of the macro environment, remain fragile. Europe is going to be in recession next year, the U.S. maybe will see modest growth, and China (is) slowing. That is still positive for gold... but right now gold is trading as a risk rather than a risk hedge."
U.S. stocks declined modestly as equities retreated from recent gains, and European shares fell in thin trade after investors booked profits from gains earlier in the day. .N
The euro also pared early gains to trade near flat against the dollar, as investors fretted that the longer-term lending from the European Central Bank to regional banks would do little to solve the monetary union's ongoing debt crisis. <USD/>
Bullion, like other dollar-priced assets, tends to benefit from weakness in the U.S. currency, as it becomes cheaper for holders of other currencies.
While gold pushed above its 200-day moving average early in the session, it pulled back below it where it closed for its sixth straight finish.
While gold's break last week below the 200-day average was significant, Rick Bensignor, Chief Market Strategist at Merlin Securities said, it was a signal and not the only indication of the yellow metals direction.
Gold price chart: link.reuters.com/sez65s
Asset returns in 2011: link.reuters.com/daj24s
Gold correlation with dollar: r.reuters.com/ryx52s
Inflation adjusted gold price: r.reuters.com/pun62s
Gold in different currencies: r.reuters.com/wun62s
Gold/silver ratio: r.reuters.com/xyx52s
Gold/platinum ratio: link.reuters.com/xez92s
Physical demand for the yellow metal was sluggish in India, the world's number one gold consumer, dealers in Mumbai said. A price recovery from last week's 11-week low put buyers off.
Among other precious metals, silver went down about 1.2 percent to $29.36 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, neared 55. This week, it hit its highest level since November 2010.
"In April, this coefficient dropped at times below 32 and thus to a 31-year low," said Commerzbank in a note.
Silver has tended to underperform gold since its sharp price slide in early May spooked investors.
"Despite the severe slump in its price, gold has therefore fared well in comparison to silver over recent weeks and months. One of the reasons for silver's relative weakness is reduced demand from China," Commerzbank added.
Trade data released on Wednesday showed China's silver imports are down nearly 30 percent in the year to November.
Spot platinum was last at $1,424.25 an ounce, down from $1,426.49 late Tuesday. Spot palladium rose to $630.97 an ounce from $624.47 an ounce.
(Editing by Alison Birrane and Alden Bentley)