By Jan Harvey
LONDON (Reuters) - Gold prices fell on Wednesday, extending the previous day's sharp slide, as the metal's appeal as a haven from risk was hurt by speculation the U.S. economic recovery is gaining traction and a retreat in concerns over Cyprus.
Gold slid 1.4 percent on Tuesday, its biggest one-day drop since February 20, as stocks markets rallied in Europe and the United States. Firmer appetite for assets seen as higher risk, like equities, dented interest in safe-haven bullion.
The metal hit its lowest since March 8 in early trade at $1,563.06, but clawed back some losses as the rally in European stock markets stalled.
Spot gold was down 0.2 percent at $1,571.80 an ounce at 1203 GMT, while U.S. gold futures for April delivery were down 0.3 percent at $1,571.70 an ounce.
"Ascribing gold weakness to equity strength is shorthand for talking about risk appetite, and there's no doubt that the ostensible solution to what's been happening in Cyprus took away some of the short-term reason to hold gold," Mitsui Precious Metals analyst David Jollie said.
"There is certainly a degree of optimism about the U.S. economy, and that should lead to some reductions in gold long positions," he added. "There is scope for gold to strengthen if economic data isn't as strong as people are hoping, but at the moment, there's a lack of justification to buy in the short term."
European shares steadied on Tuesday as speculation of takeover activity among telecom stocks dissipated, capping its previous gains, while the euro edged up a touch versus the dollar.
Financial market participants largely stuck to the sidelines ahead of policy announcements from the Bank of Japan and the European Central Bank later this week, and Friday's key U.S. non-farm payrolls data.
"With NFP figures due out on Friday, the (gold) market may not get itself too short in case of a bad figure," Marex Spectron said in a note. "But overall, the trend is lower and the sentiment is negative."
INDICATORS POINT LOWER
From a technical perspective, Tuesday's sell-off has left gold trading just above support at $1,561.55 and $1,555.55, the March and February lows, UBS said in a note.
"With the trending and momentum indicators pointing lower, a break below these would extend weakness to test strong support at 1,526.97, the May 2012 low," the Swiss bank said.
"Silver... is currently testing critical support at 27.01, the August 2012 low," it added. "With the moving average convergence divergence (MACD) below its zero line, reflecting a bearish trend, a break below this would trigger a deeper sell-off to test next significant support at 26.50 and 26.16."
Spot silver was flat at $27.20 an ounce, off an eight-month low of $26.88 hit in earlier trade. Silver was at its cheapest compared to gold since August, with an ounce of gold now buying nearly 58 ounces of silver, up from around 50 ounces in late November.
Credit Suisse became the latest bank to cut gold and silver price forecasts for this year and next. It reduced its 2013 price view on gold to $1,580 an ounce from $1,740 an ounce, and its forecast for silver to $28.50 from $32.20.
"While the problems in Europe and, perhaps, concerns about the impact of the U.S. sequester may keep the metal reasonably well supported during the current quarter, we expect further weakness through (the second half)," it said.
"We reiterate that by long-term historical standards gold remains overvalued, both in real terms and relative to other commodities and assets."
Among other precious metals, spot platinum was down 0.2 percent at $1,566.75 an ounce, while spot palladium was down 0.5 percent at $760.50 an ounce.
The platinum group metals are the best performers of the precious metals complex this year, with platinum up 1.5 percent and palladium 8.1 percent, against a 6.2 percent drop in gold prices and a 10.5 percent fall in silver.
Platinum narrowed its historically unusual discount to gold on Wednesday to as little as $2.64.
(Reporting by Jan Harvey; editing by Alison Birrane and Keiron Henderson)
