Gold Falls 1 pct on Dollar Strength; Investors Cautious

Gold slipped 1 percent in volatile trade on Wednesday as the U.S. dollar regained strength on doubts over the progress of Europe's efforts to tackle the region's debt crisis, while this week's brutal correction also kept investors at bay.

Plans to increase the financial firepower of the euro zone's 440 billion euro rescue fund face opposition in Germany, while a Financial Times report said at a split had opened up within the currency bloc over the terms of Greece's next bailout.

Spot gold fell $13.11 to $1,635.79 an ounce by 0304 GMT, down for a fifth day in six. It had tumbled to a two-month low of $1,534.49 on Monday -- down from a lifetime high around $1,920 an ounce struck in early September.

After the freefall in prices, sentiments have been impacted and there could be some further downside. Investors are likely looking for prices to stabilise before they return to the market, said Ong Yi Ling, an analyst at Phillip Futures in Singapore.

Currently, gold has positive correlation with commodities and a negative correlation with the dollar. This could be a factor influencing bullion prices. Support for gold established at $1,525.

U.S. gold futures dropped more than 1 percent to a low around $1,633, while other precious metals tracked bullion lower, with silver falling more than 2 percent.

Asian stocks edged up and a rally in the euro stalled on Wednesday as investors awaited more signs of progress from European leaders on tackling the debt crisis before committing bolder market bets.

The dollar rose 0.4 percent against a basket of currencies, which in theory should weigh on commodities priced in the U.S. currency such as oil and industrial metals.

The uncertainties about global economic growth, mainly sparked by the lack of consensus on a lasting solution to the euro zone debt crisis, have driven gold prices to record highs since July.

But declines in other markets as well as gold's failure to revisit recent highs eventually prompted investors to sell bullion for cash to cover losses.

Holdings of the largest silver-backed ETF, New York's iShares Silver Trust rose 1.16 percent (pct) on Tuesday from Monday, while that of the largest gold-backed

exchange-traded-fund (ETF), New York's SPDR Gold Trust fell 0.39 pct for the same period.

Jewellers have bought gold when prices pulled back to around $1,500. We saw some decent buying, but now everybody waits and sees, said a dealer in Hong Kong.

Are we going to see a recession? But I think long-term sentiment for gold is still bullish because the dollar could still weaken again.

In other markets, London copper fell more than 1 percent, while oil lost more than $1 as the dollar gained.