Gold fell more than 1% on Friday as investors quickly sold to raise cash to cover margin calls in the lower equity markets after Fitch downgraded the credit ratings of Spain and Italy.
Despite Friday's pullback, gold is on track to notch its first weekly gain in a month. Bullion this week has largely risen in tandem with risk assets, and the safe-haven buying that helped the metal's three-year rally was absent.
Gold climbed with Wall Street in early trade after a better-than-expected US nonfarm payrolls report eased recession fears.
However, traders said that bullion's fundamentals remained unchanged as the mildly positive jobs data failed to change investors' view that the Federal Reserve must do more to spur a stronger recovery.
"When people need money to answer margin calls, gold will always suffer from the liquidity bids in other markets. I don't know if we have seen the bottom put in for gold after this week's reversal," said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital, which oversees USD 17 billion in assets.
Gold fell 1.1% to USD 1,631.69 an ounce by 1:05 pm EDT (1705 GMT), having traded as high as USD 1,665.99 earlier.
The price of gold is poised to post a 0.5% gain for the week, its first weekly gain in five weeks, helped by better physical demand as the metal continued to cover after its 20% correction from its record of USD 1,920.30 set in early September.
US December gold futures were down USD 19.40 at USD 1,633.80. Trading volume has been thin in the second half of the week, suggesting recent gains could be short-lived.
Silver was down by 2.9% at USD 30.98 an ounce.
Following an outflow of nearly half a million ounces of gold from global exchange-traded funds in September, ETFs have recovered nearly a quarter of that metal as investors have bought at lower levels.
In platinum group metals, platinum fell by 1.2% at USD 1,487.49 an ounce, and palladium dropped 2.9% to USD 584.75.
