(Reuters) - Gold steadied on Thursday to around $1,700 an ounce after its decline to one-month lows this week triggered some bargain hunting, with a slightly weaker dollar adding support to the precious metal.
Gold's rise echoed gains in commodity markets, but concerns about the euro zone debt crisis continued to weigh on sentiment.
Although gold is regarded as a safe haven asset to shield investors in times of uncertainty, it has increasingly become prone to pressure from selling in the wider financial market, moving in tandem with other assets as investor sentiment remains fragile.
Spot gold traded at $1,694.29 an ounce at 1448 GMT, up 0.1 percent from $1,692.79 late in New York on Wednesday. On Monday it hit a one-month low at $1,665.88 an ounce.
The precious metal is set for its second straight week of falls, down 1.5 percent so far this week.
"Gold is having some difficulty holding above the $1,700 level over the last few days. The U.S. dollar will probably dictate where we head from here," Ross Norman of Sharps Pixley said.
The dollar traded slightly lower against a basket of currencies. A stronger dollar makes commodities priced in U.S. dollars cheaper for holders of other currencies. .DXY
"The market tends to quiet down by the first week of December and we're getting to the point where those who want to take profits after a pretty good year will start to do."
Gold, which hit a record above $1,920.30 in September, is up more than 19 percent in the year-to-date. So far in November it has lost 1 percent.
Trading was subdued due to the Thanksgiving holiday in the United States. U.S. gold futures was down 0.2 percent at $1,693.40 an ounce.
CRISIS CONCERNS
The euro fell to the day's low versus the dollar after German Chancellor Angela Merkel said she still does not think common European bonds are necessary, intensifying concerns that European leaders cannot agree on solving the debt crisis.
France pressed Germany on Thursday to let the European Central Bank act decisively to halt a stampede out of euro zone government bond markets that has raised doubts about the survival of the single currency.
Germany itself suffered a failed bond auction on Wednesday, highlighting how investors are wary even of Europe's safest haven.
The threat to the euro from the crisis increases the chances for gold to ease further, analysts said.
"That the price slump in gold is mainly U.S. dollar-driven is evident from the fact that gold calculated in euros has been able to rise," Commerzbank said in a note.
"Obviously gold is continuing to be sold to generate liquidity and compensate for losses in other asset classes. If equity and commodity markets continue to remain under pressure, this trend is initially likely to continue."
Gold priced in euros was a touch higher on the day, trading around 1,271.51 euros an ounce, but has risen by nearly 2 percent in the last three trading days, its strongest three-day stretch of gains in two weeks.
"It wouldn't surprise me if we still have another shift lower to test the big line of support, which is the 200-day moving average, which is getting close to $1,600 level," Tom Kendall, precious metals analyst at Credit Suisse said of the price of gold in dollars.
Gold hit a 2-1/2 month low of $1,534.49 in late September, which was roughly the location of the 200-day moving average.
Silver prices were also slightly higher, tracking gold's modest gains. Spot silver was up 0.2 percent on the day at $31.72 an ounce, but remained on track for a 7 percent decline in November.
A senior official at ScotiaMocatta, a bullion dealer, said on Thursday Indian imports of silver would be marginally lower this year compared to last year.
India is a leading consumer of silver and the world's largest consumer of gold.
Platinum was down 0.6 percent at $1,532.24 an ounce and palladium shed 0.7 percent to $576.49 an ounce.
