Gold pared losses Thursday, after witnesses said police in oil-rich Saudi Arabia had fired upon protesters, prompting investors to buy bullion as a safe haven.
Saudi police dispersed a protest by a Shi'ite minority in the OPEC member's oil-producing Eastern Province Thursday with one to four people wounded as shots were heard, witnesses said.
"Anytime you have any type of supply issue with crude oil, speculators try to hedge themselves with the gold market against inflation, which is good for gold and silver," said Michael Daly, gold specialist of futures broker PFGBest.
Gold often spikes in response in times of political and economic uncertainty because the metal's intrinsic value is unaffected by fiat currencies.
Spot gold fell as low as $1,402.72 an ounce, a two-week low, and was later down 1.2 percent at $1,412.50 an ounce by 3:09 p.m. EST.
U.S. gold futures for April delivery settled down 1.2 percent to $1,412.50. Volume exceeded 200,000 lots, up about 15 percent from the 30-day average, preliminary Reuters data showed.
Spot silver fell 2.2 percent to $35.27 an ounce, as investors unwound recent profits due to physical supply tightness.
Earlier this week, the gold-to-silver ratio fell to a 13-year low after silver had outperformed bullion
CROSS ASSET SELL-OFF
Bullion retreated from its record high of $1,444.40 an ounce set earlier this week, as a cross-asset sell-off accelerated on Thursday. Both Wall Street and oil fell over 1 percent after an unexpected Chinese trade deficit and renewed euro zone debt jitters fueled global growth concerns
In spite of a downgrade of Spain's credit and ongoing violence in Libya, gold sold off as the need to raise cash to cover margin calls more than offset investor worries about global economic growth.
Gold was hit as the dollar rose almost 1 percent against the euro after Moody's downgraded Spain to Aa2 from Aa1 with a negative outlook, leaving the euro vulnerable to more downward pressure in the coming weeks.
"Spain's downgrade is clearly helping the dollar at this point. A few weeks ago, the story was everybody rushing into gold rather than the dollar, and now the tide seems to have shifted a bit," said Peter Buchanan, senior economist of CIBC World Markets.
On charts, spot bullion bounced off support after briefly dipping below its 20-day moving average earlier in the session.
Tom Pawlicki, precious metals and energy analyst at futures broker MF Global, cited technical selling as gold this week has failed to clear key resistance at $1,435 an ounce -- the upper trendline of a long-term rising channel dated back from 2008.
EYES ON EURO ZONE SUMMIT
Bullion investors will watch closely for possible development out of a Friday summit of a group of 17 euro zone leaders. The goal for the meeting is to boost competitiveness and to quell the region's debt crisis.
UBS said in a note that financial markets are likely to be disappointed by the outcome of the European meeting, which could benefit bullion.
"There is growing acceptance that Europe's debt crisis will get worse before it gets better, as our fixed income strategists maintain, and that this will be gold-positive," UBS said.
Platinum slid 1.9 percent to $1,761.49 an ounce, while palladium lost 1.9 percent to $761.97.
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