Spot gold prices fell off two-week highs on Tuesday after failing to pierce the $1,700 per ounce mark and as bullion tracked a weaker euro.
Losses accelerated in late New York trade after the Comex March options contracts expired.
Interest ahead of the options expiry had pushed gold just $4 shy of key resistance, but prices weakened to an intraday low below $1,680 per ounce in late afternoon as the dollar strengthened against the euro.
The slide erased the previous day's rally, falling below the 100- and 200-day moving averages they had breached on Monday. That rally came after Federal Reserve chairman Ben Benanke signaled U.S. interest rates would stay low. That would maintain the low opportunity cost of holding bullion.
Spot gold was at $1,679.44 an ounce at 5:21 p.m. EDT (2221 GMT), down $12.3 or 0.73 percent, after hitting a two-week peak at $1,696.20 earlier in the day.
for April delivery settled at $1,684.9 per ounce, down slightly from Monday's settlement of $1,685.6.
With most call and put options concentrated around $1,700 an ounce, expiry passed with no buying materializing to provide any upside momentum.
"Most of the open interest was at $1,700. It tried to force its way up there," said a Comex trader.
There were spikes in volume during the day, the largest taking place at around 1:15 p.m. EDT (1755 GMT), as a broker unwound his options conversions ahead of the contract expiry, the trader said.
Technical factors also held prices back after the market failed to settle above $1,690 per ounce, the trader said.
"A lot of it was also technical. If it had settled above $1,690, it would have been very bullish," he said.
The conditions are in place for it to break above the $1,700 mark, although there may be further pressure in the near term, he said, adding that bullion will find support at $1,660 per ounce.
"Once it's through there ($1,700), it will get up to $1,730, $1,750," he said. Gold has not been at those levels since the end of February.
A second trader said he expects a volatile market as traders square their books ahead of the end of the first quarter. Prices are up 7 percent since the start of the year.
Daily volume was average, although activity levels so far this month have been higher than the previous months. With three days until the end of the month, volume is already at 3.13 million lots, close to exceeding February's level of 3.2 million lots.
That would be the highest monthly volume since September, when prices hit the record of $1,920 per oz before plunging almost $400 by the end of the month.
On Tuesday, gold surrendered early gains as the euro lost ground against the dollar after a two-day rally. The precious metal tends to benefit from weakness in the dollar, which makes it cheaper for holders of other currencies.
Monday's rally was triggered when Bernanke said the U.S. economy needed to grow more quickly to cut the unemployment rate. While he did not directly indicate the Fed was set to begin another round of bond purchases, he said a continuation of accommodative policies was needed to support faster growth.
Appetite for assets seen as higher risk mostly held firm after strengthening the previous day. World stocks touched an eight-month high on the back of Bernanke's comments and on expectations the euro zone would agree to a bigger crisis firewall, while oil held above $125 a barrel.
"Our economists believe that the market has been too aggressive in pricing in Fed rate hikes in 2013, while the Fed is more likely to push the hikes out to 2014 as indicated by the speech," said BarclaysCapital in a note.
"We believe low interest rates and longer-term inflationary pressures should remain supportive for gold prices."
Gold exchange-traded funds, which issue securities backed by physical metal, reported inflows on Monday. Holdings of the largest, New York's SPDR Gold Trust, increased by around 6 tonnes, reversing some of the previous week's 10 tonne drop.
Demand for the yellow metal in major consumer India remained subdued, however, as a strike continued among jewelers in protest at a government import levy.
"There is valid concern over Indian gold demand, which may decline on the back of higher domestic taxes on the gold industry," said Standard Bank in a note. "Indian buying has been notably weak as the strike by jewelers drags on for the 11th day today."
Silver was down 0.88 percent at $32.54 an ounce. Spot platinum was up 0.32 percent at $1,648 an ounce, while spot palladium edged down 1.07 percent to $656.
Platinum maintained an historically unusual discount to gold as buyers worried about demand for the white metal, which is chiefly used in autocatalysts.
Platinum prices are up more than 18 percent this year after a poor performance in 2011 but have struggled to maintain traction as worries persist over growth in the euro zone, a major market for platinum-heavy diesel autocatalysts.