The price of gold in Sydney had fallen $US104 late yesterday and was $US1739.5 an ounce, following the lead of the US, where the yellow metal also fell on a rising stockmarket and a bounce in confidence.
National Australia Bank minerals and energy economist Ben Westmore said the slip was also a result of the strong run-up in the price over the past few weeks.
"We saw gold reaching above $US1900 in unmarked territory coming from what we saw mid-year at around the $US1600 an ounce level, and a lot of that has been driven by this fear and panic in financial markets," he said.
"It is only natural that when you get some slightly better than expected data and the market's mood turns, that you are likely to see gold being sold off.
"We see the extent of that sell-off as being a product of how quickly and how much the price had risen and the fact that a lot of it was driven by speculation.
"Whenever you get those steep price rises that are driven by speculation, it leaves a lot of room for them to fall eventually if the mood changes in these markets."
US jobless claims data and an address by Federal Reserve chairman Ben Bernanke this week are tipped to lift the gold price, reversing some of the losses, which also reflected profit-taking by some investors.
"In the short term there is a better than 50 per cent chance that in the next few weeks there will be further news that highlights a downside risk and you'll see the gold price jump again," Mr Westmore said.
The gold bulls had been tipping the price was on a rapid run to breach $US2000, but some traders had been tipping the strong rise was about to be clipped. With continuing nervousness about the US economy and Europe's debt concerns not expected to ease, safe haven buying of gold is still widely predicted to sustain high prices.
Mr Westmore said he was expecting gold prices to ease in the second half, but he did not expect any substantial fall in the price in the short term.
"There are still plenty of factors supporting prices at these levels, even though a lot of them are speculative," he said.
Demand from India and China is also expected to underpin the record prices, with the Indian wedding season running for the next few months.
"In the gold market there is all this investment that is causing a lot of the price movements at the moment, but underlying that investment is a strong base of demand from general jewellery consumers in China and India that are experiencing quite strong income growth," Mr Westmore said.
While the surprisingly positive US data -- on durable goods orders -- and expectations that more Federal Reserve economic stimulus may come soon, took the shine off the gold price, it had the opposite impact on base metals, with copper slightly rising. Gains in copper, lead and nickel, however, were offset by losses in aluminium, tin and zinc.
