Gold briefly dropped below $1,100 (U.S.) an ounce Friday despite a dollar rise, ending the week $30 weaker as investors unwound positions added last week due to currency volatility amid a Greek debt crisis.
Speculation of further money tightening by China and economic uncertainty amid sovereign debt worries out of Europe prompted heavy future liquidation this week.
Gold's losses this week in the wake of a lower dollar indicate the inverse relationship between the metal and the U.S. currency is broken for now, but traders said that could reverse soon.
"The focus right now is mainly on the stock market, and it is a rarity that gold is down with a falling dollar. At some point, I foresee this relationship will go back to normal," said Jeff Pritchard, analyst at California-based broker-dealer Altavest.
Spot gold was at $1,101.80 an ounce at 3:16 p.m. ET, against $1,109.30 late in New York on Thursday.
U.S. April gold futures on the Comex division of the New York Mercantile Exchange settled down $6.50 at $1,101.70 an ounce.
Gold prices rose earlier in the session as the euro's recovery against the dollar fuelled buying. However, a brief retreat in the single currency dragged the metal through major technical support at $1,115 an ounce, analysts said.
After rising almost $20 last week, gold was pressured as traders take profits. Speculators had been increasing their net long position in gold for four straight weeks but they may now be trimming those positions, putting selling pressure on the yellow metal, traders said.
The latest Commitment of Traders report by the U.S. Commodity Futures Trading Commission showed net long noncommercial gold futures positions at 207,372 contracts, up 3.4 per cent from the prior week and up 14 per cent during the last four weeks.
Oil fell below $82 a barrel as weak U.S. consumer sentiment weighed on the market and offset an earlier report of stronger February U.S. retail sales.
Weak physical demand also weighed on sentiment. Russia's central bank said it sold gold coins containing 2,300 ounces of the metal in January, an 85 per cent slump compared with 15,700 ounces a year earlier.
In supply news, South Africa's Chamber of Mines said the republic's gold production fell by 5.8 per cent in 2009, pushing it to the fourth-biggest producer after China, Australia and the United States.
Among other precious metals, silver was at $17.02 an ounce against $17.16 on weak investment demand. The world's largest silver ETF, the iShares Silver Trust, said its holdings fell 48.8 tonnes from a day earlier to 9,302.58 tonnes on Thursday.
Elsewhere platinum initially hit a seven-week high $1,623.50 an ounce. It fell on broad-based commodities decline and was last at $1,605 against $1,609.50, while palladium was at $461 against $458.
The metals have by far outperformed gold this year as investors expect industrial demand from car akers to improve and investment buying to rise. They are also closely eyeing the supply of metals.