Spot gold was at $1,721.90 an ounce at 1510 GMT against $1,722.49 late in New York on Monday, having touched an intraday low of $1,711.70 earlier in the day. U.S. gold futures for February delivery were down $1.4 at $1,723.50.
The euro retreated into negative territory after having hit session highs against the dollar when German economic sentiment data from ZEW suggested Europe's largest economy was holding up despite the debt crisis.The gold price rose by more than 10 percent in January, boosted by the Federal Reserve signalling it believed the U.S. economy was weak enough to warrant leaving interest rates at zero for nearly three more years, but since then, the bullion market has struggled to make much upward progress.
Gold had a good run-up but it's banged its head against resistance around $1,760.00, we've seen corrections and, combined with the fact that it doesn't seem to be moving higher on the Moody's downgrades or the margin requirement being reduced, it seems like it needs to try to trade a bit and have the strength and support in the market confirmed," he said, adding that any steeper declines should be stemmed around $1,660 or $1,670.
Gold remains more sensitive to moves in the euro/dollar exchange rate in the short term than to rising risk aversion, which in the past has been a positive driver of prices. It remains vulnerable to fresh losses in the single currency, which quickly came off its post-data highs.
Gold's correlation with the single European currency is around its most positive so far this month, just shy of 50 percent and up from a three-month low of 33 percent last week.
In addition to its warning on some of Europe's top-rated nations, Moody's downgraded six other European countries including Italy, Spain and Portugal, citing the risks of the euro debt crisis.
While the Moody's news rattled the markets, focus remained on Greece, which has acknowledged it still has much to do to persuade the European Union and International Monetary Fund to save it from a chaotic default.
Euro zone finance ministers have asked the Greek government for details of how it will fill a 325 million euro ($429.5 million) gap in its plan for an extra 3.3 billion euros in savings this year ahead of a meeting in Brussels on Wednesday.
Greece's austerity measures are proving painful. As parliament debated the package on Sunday night, riot police fought running battles with protesters outside.
On the physical side of the market, gold demand in major consumer India was soft on Tuesday as traders bet prices would continue to fall, after briefly ticking higher.In number two gold market China, the world's first yuan-denominated gold exchange-traded fund made a weak debut on the Hong Kong stock exchange, but analysts said demand would probably pick up as investors become more familiar with it.
Among other precious metals, silver was down 0.3 percent at $33.58 an ounce. Spot platinum was down 1.0 percent at $1,626.99 an ounce, while spot palladium was down 1.8 percent at $682.50 an ounce.
Platinum prices eased back from the three-month high they hit late last week on the back of supply outages in major producer South Africa, after Impala Platinum said it had started rehiring employees after sacking 17,200 in a labour dispute.
The platinum:palladium ratio - the number of palladium ounces needed to buy an ounce of platinum - held near its highest since early December on Tuesday at 2.37, as palladium prices also retreated.
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