"It was hit by fund sales - it was quite orderly. The support is now at $415.50/416.00 and it looks like resistance at $418.00," a trader said. Analysts said sentiment was also undermined by talk of possible sales by central banks and concern over expected discussions at this weekend's G7 summit about the UK-led proposal to use some of the IMF's gold reserves for Third World debt relief.
"We will discuss using IMF gold and financing World Bank debt service payments," Gordon Brown, Britain's finance minister, said in the UK parliament on Thursday.
"There is 12 billion dollars owed to the IMF by the poorest countries in the world. If the IMF was prepared to either revalue or sell its gold that would be the best way of removing the liability that these countries have," Brown added.
Analyst James Moore of TheBullionDesk.com noted that Brown talked of a decision within the next few weeks.
"Support seems to be growing for the scheme with this weekend's G7 meeting potentially bringing up further news or discussions," Moore added.
The market had been on the retreat for most of the session, apart from an early uptick, and the mood-swing in sentiment could see lower levels yet.
"It looks like we are heading back to $400.00, although it won't go there in a straight line," the trader said.
In a recent Reuters poll, analysts forecast that gold prices will average $430.00 an ounce this year, up four percent on 2004's $413.56. Other factors combined to weigh on gold throughout the session as well.
"There seems to be a programme of selling in gold - it may be central banks (under Europe's Central Bank Gold Sales Agreement)," one dealer said.
The euro fell to $1.2953 as US jobless claims dipped unexpectedly. A stronger dollar makes the metal less affordable for non-US investors.
In other precious metals spot platinum was quoted at $861.00/866.00 from $869.00/873.00 previously, while palladium was at $180.00/184.00 from $185.00/190.00
Silver was last quoted at $6.62/6.65, down from $6.72/6.75 late in New York on Wednesday.