Gold fell to its lowest in nearly a month on Tuesday on technically driven selling after prices broke below key support levels, with oil prices also drifting lower as investors worried about stalled US budget talks.

Gold broke below $1,710 an ounce and subsequently $1,705 in Asian trade, key chart levels it had held since early November, which triggered stop-loss selling, traders said. It bounced off support at $1,698 an ounce to return to its lower support level.

Spot gold was down 0.5 percent at $1,706.00 at 1141 GMT, while most-active U.S. futures contract were down 0.8 percent at $1,707.90, having earlier dropped as much as 1.3 percent to a near one-month low of $1,698.50.

"Gold is off with some other risk assets such as commodities," Peter Fertig, a consultant with Quantitative Commodity Research, said. "Some investors are taking a 'risk off' approach, and this led to some technical stops, which triggered further selling."

Brent crude oil slipped towards $110 a barrel as weak manufacturing data and protracted negotiations over the so-called U.S. "fiscal cliff" fanned concerns about the health of the global economy and the prospects for energy demand.

The fiscal cliff, $600 billion of U.S. tax hikes and spending cuts to kick off in early 2013, threatens to push the world's biggest economy into a recession. Its impact on gold is as yet uncertain, leaving investors wary of taking positions.

Gold failed to benefit from gains in other markets, with European shares edging higher and the euro holding in positive territory after earlier hitting a six-week high against the dollar.

"Gold is finding it difficult to convince the masses that it should...be benefiting from the uncertainty and rising concerns surrounding U.S. fiscal cliff negotiations rather than being weighed down by the negative sentiment," UBS said in a note.

"As a result, trading the yellow metal and taking positions ahead of key policy decisions - with the FOMC meeting next week and the ongoing negotiation on the fiscal cliff - has become increasingly difficult. Given the lack of clarity on gold's next direction, many have chosen to stay on the sidelines."

Gold investors will focus on the outlook for U.S. non-farm payrolls data on Friday, due to the link between job creation and monetary policy. A dearth of new jobs could mean that the current ultra-loose monetary policy will continue for longer.

"There will probably be less job creation in areas hit by Hurricane Sandy, and that could have a significant impact on gold," Fertig said.

TECHNICAL ANALYSIS

From a technical perspective, gold is finding good support at its mid-November low at $1,705, backed up by a key retracement of its November recovery at $1,703 an ounce. Below that, its 100-day moving average provides further support at $1,698 an ounce, dealers said.

"Gold spot is playing with the key graphic support zone at $1,703.... the 61.8 percent retracement of its November recovery, as well as the lows of early to mid-November," Societe Generale said in a note. "The 100-day moving average strengthens the support region of $1,703/$1,700."

A recent drop in rupee-priced gold due to a stronger local currency has attracted buyers in India, while physical demand in the rest of Asia remained lacklustre as market participants wait for a clear direction in prices.

Russian gold companies increased gold production by 5.2 percent in the first ten months of 2012 compared to the same period of last year, the industry lobby said on Tuesday.

Among other precious metals, spot silver was down 1 percent at $33.29 an ounce.

Spot platinum dropped to a one-week low of $1,585.20 an ounce before recovering to $1,592.24, down 0.5 percent. Spot palladium, which has risen for the past five weeks, fell 0.6 percent to $681.40. – Reuters