Spot gold fell as low as $1,690.64 an ounce and was down 1 percent at $1,697.81 at 1454 GMT, while most-active US futures contract were down 1.2 percent at $1,700.10, having earlier dropped to a near one-month low of $1,692.60. Wall Street struggled for traction at the open, with the market hostage to negotiations in Washington on how to avert a "fiscal cliff" - $600 billion of impending tax hikes and spending cuts that could push the US economy into recession.
Republicans in Congress proposed steep spending cuts to bring down the US budget deficit on Monday but gave no ground on President Obama's call to raise taxes on the wealthiest Americans, and the proposal was dismissed by the White House. Investors are divided over the potential impact of negotiations on gold, leaving it hostage to technical pressures.
"We tend to get the best short-term spikes in gold, and the best performance relative to the other commodities, when there is a lot of financial stress in the market," said Sean Corrigan, chief investment strategist at Diapason Commodities Management.
"If you think the cliff will spike up volatilities and cause a safe-haven run, then gold will benefit from that," he said. "(But) if they smooth it all over.... in the short term it will quash those worries, and may therefore not help gold's cause in the immediate aftermath of a deal being done." Gold broke below $1,710 an ounce and subsequently $1,705 in Asian trade, key chart levels it had held since early November, which triggered stop-loss selling, traders said.
A break of key psychological support at $1,700 and a move below the metal's 100-day moving average at $1,695 for the first time since mid August accelerated selling, taking prices to a low of $1,690 an ounce. Russian gold companies increased gold production by 5.2 percent in the first ten months of 2012 compared to the same period of last year, the industry lobby said on Tuesday. Spot silver was down 1.6 percent at $33.07 an ounce. Spot platinum dropped to a one-week low of $1,576.20 an ounce before recovering to $1,587.49, down 0.8 percent. Spot palladium, which has risen for the past five weeks, fell 0.8 percent to $680.47.