Gold fell for a third consecutive session Wednesday, moving once again in tandem with riskier assets, as jittery investors sold on a lack of progress over euro zone debt talks and an uncertain U.S. economic outlook.
Bullion tracked Wall Street lower after French President Nicolas Sarkozy said plans to tackle Europe's debt crisis have stalled with Paris and Berlin at odds over how to increase the firepower of the region's bailout fund. Moody's downgrade on Spain's sovereign credit rating also weighed.
Disappointment over the Federal Reserve's beige book -- a survey of national business conditions, sent gold, stocks and commodities broadly lower. Gold slumped more than 2 percent in the last three sessions, having briefly broken its unusual positive correlation with riskier assets on the previous day.
"The general consensus is that there is little in the beige book that would fire up hopes of QE3, and coupled with the no real resolution in Europe, investors are liquidating their positions," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC in Chicago.
Spot gold was down 0.9 percent at $1,642.99 an ounce by 2:45 p.m. EDT (1845 GMT).
U.S. December gold futures settled down $5.80 at $1,647 an ounce. Trading volume was around half of its 30-day norm after higher-than-usual turnover during Tuesday's decline.
Spot silver was down 3 percent at $31.06 an ounce.
In afternoon trading, selling accelerated across asset classes after the Fed's beige book showed that the U.S. economic outlook grew dimmer in September, leading businesses to be wary of spending and of building up inventories ahead of the holiday sales season.
Gold's inflation-hedge appeal dimmed after a report earlier showed U.S. core consumer prices rose at their slowest pace in six months in September. Traders also cited worries that the U.S. futures regulator will pushed through its toughest measures to curtail speculation in commodities.
EU SUMMIT EYED
Bullion investors now look forward to possible details of plans to contain the nearly two-year-old euro zone debt crisis at a summit of European leaders on Sunday.
The backdrop of Greek police clashing with demonstrators as workers began their biggest strike in years in protest at cuts demanded of their country in return for help raised market nervousness.
"The traders for the most part want to hear what concrete action the European Union plans on taking to resolve its woes before they add to current positions," said Miguel Perez-Santalla, vice president at Heraeus Precious Metals Management.
"It looks like we are in wait-and-seek mode for now," he said.
Gold, traditionally a safe-haven investment, rebounded from its lows following September's near-11 percent decline, yet analysts said bullion's usual inverse correlation to riskier assets has eroded, making it less likely to act as a safe-haven in times of market turmoil.
Technical analysts said that a bearish double-top, based on the two recent highs formed in late August and early September would continue to weigh down on the metal's near-term outlook.
Palladium dropped 2.8 percent at $600.68 and platinum declined 1.1 percent at $1,510.74.
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