LONDON -- Gold fell to a six-month low in thin year-end trade on Tuesday, on course for its biggest annual decline in 32 years as prospects for global economic recovery prompted investors to switch to riskier assets.
After a 12-year bull run gold has shed around 28 percent in 2013, with the U.S. Federal Reserve's plan to step away from ultra-loose monetary policy undermining the investor case for holding bullion.
Years of accommodative monetary policies had propelled the price of gold to all-time highs of $1,920.30 an ounce in September 2011, as low interest rates encouraged investors to put money into non-interest-bearing assets.
Spot gold fell one percent to its lowest since June 28 at $1,184.50 an ounce in earlier trade, before recovering 1.2 percent to $1,210.26 an ounce at 10:17 EST in choppy trade. U.S. gold futures for February delivery rose 0.5 percent to $1,208.80 an ounce, having earlier fallen to a low of $1,181.40.
"For the first three months of the year at least we are quite pessimistic on gold and a break below $1,180 could trigger further declines to the $1,000 mark," T-Commodity partner Ganclaudio Torlizzi said.
"Moreover, the dollar should strengthen towards the euro in January, as the economy improves, and that's another bearish element for gold," he added. "For the time being, investors will continue to put their money into equities."
World stocks were ending 2013 close to six-year peaks and benchmark bond yields were poised for their first annual rise since 2009 as investors celebrated a pick-up in global growth with expectations of more to come.
The dollar was on track to end 2013 modestly higher against a basket of main currencies.
"As soon as short-term interest rates start rising then you can't afford to invest in something that doesn't pay yield like gold -- it's going to be equities and ... money market funds will also seem more attractive," Standard Bank analyst Walter de Wet said.
Gold was also set to post hefty annual losses in other currencies, with prices in euros down 31 percent on the year, the first fall since 2004. Prices fell 30 percent in Swiss francs and 29 percent in British pounds.
A drop in exchange-traded fund holdings showed investors had lost faith in bullion as a hedge against inflation and an alternative investment after the Federal Reserve announced plans to trim its monthly bond purchases.
In Singapore, premiums for gold bars were unchanged at $1.50 an ounce to spot London prices, while in Hong Kong, offers stood at between $1.50 and a high of $2.00.
Silver rose 0.4 percent to $19.66 an ounce. Silver is down 37 percent this year in its worst annual performance since at least 1982, making it the worst-performing precious metal in 2013.
Spot platinum was up 0.7 percent at $1,365.24 an ounce and on course to post a 12 percent annual loss. Best-performing palladium rose 0.4 percent to $709.00 an ounce and is set to end the year up nearly 1 percent.