Gold fell to a near three-month low on Tuesday, putting the metal on course for its worst monthly performance in 13 months as safe-haven demand evaporated and investors booked further profits on the 2010 rally.
Spot gold fell as low as $1,322.70 an ounce and was bid at $1.327.70 an ounce at 1409 GMT, against $1,334.25 late in New York on Monday. U.S. gold futures for February delivery fell $16.80 to $1,327.70.
Spot prices are on course for a 6.4 percent decline in January, which would be the biggest monthly fall since a 7-percent drop in December 2009. Selling is largely a consequence of a current run of positive economic data.
"(We forecast gold) to have a bad first quarter," said Mitsubishi analyst Matthew Turner. "Economic data ended the year quite strongly and I thought if it carried on strongly, interest rate expectations would start to rise.
"But maybe the economic outlook isn't as rosy as people think, and maybe we will see a recovery (in gold prices) from Q2 onwards," he said.
For the moment, strong consumer demand, particularly in Asia, continues to provide a floor for spot gold prices, and a significant decline in speculative holdings of gold futures has taken some of the pressure off.
But investor sentiment toward gold has soured in the last few sessions, as evidenced by the largest one-day outflow in three months from the world's biggest exchange-traded gold fund.
Holdings in the SPDR Gold Trust fell 10.926 tonnes to 1,260.843 tonnes on Jan 24.
Adding to the case against gold was strong demand at the euro zone rescue fund's first debt offer, which pushed the euro to two-month highs.
Usually the dollar's consequent weakness would benefit gold, but the link between the two has weakened in the last year.
The European Financial Stability Facility (EFSF) launched its first sale of bonds and market sources said demand, at 48 billion euros, dwarfed the 5 billion on offer.
Longer term, ongoing jitters over growth and expectations interest rates will stay low for now are buoying analysts' expectations for gold, with a Reuters poll of 65 analysts on Tuesday returning an average 2011 price view of $1,450 an ounce.
However, they see prices plateauing next year as economic conditions normalize.
"We expect gold prices to continue to climb in 2011 as the resumption of quantitative easing should keep U.S. real interest rates low," Goldman Sachs said in a report.
"However, with the current round of QE set to end in June 2011, and our U.S. economics team now forecasting strong U.S. economic growth in 2011 and 2012, we expect U.S. real interest rates to begin to rise into 2012, likely causing gold prices to peak in 2012."
Sterling-priced gold bucked the trend, meanwhile, and was on course to rise after nine consecutive sessions of losses as the pound fell after poor UK GDP data diminished expectations that British authorities would move toward higher interest rates.
Sterling gold was up 1 percent at 842.17 pounds an ounce. Spot silver fell to $26.87 an ounce, down 0.2 percent, having earlier fallen to $26.54, its lowest in nearly two months.
ETF flows have also undermined silver. Holdings of metal in the iShares Silver Trust, the world's largest silver ETF, have fallen by 425.3 so far this month, worth about $364 million at today's prices.
ETF Securities' London-listed silver product has seen an outflow of well over 500,000 ounces in less than week.
Elsewhere platinum fell for a second day by 1.4 percent to $1,786.50 an ounce, while palladium fell 3.3 percent to $782.72, set for its biggest fall since mid-November.