Gold continues to be buffeted by speculative liquidation, some disillusionment in the wake of its anemic reaction to turmoil in paper assets, and by improving geopolitical conditions," said Jon Nadler, an analyst at Kitco Bullion Dealers.

On Wednesday, gold ended at a one-week low of $672.50 an ounce, down 2.1% or $14.70. Still, the contract ended the month of February with a gain of $14.60, or 2.2%.
"Despite the fact that we are long-term bulls of gold, we find it disconcerting that spot gold has seemingly badly failed in the past two or three days to push upward through $685 to $690," said Dennis Gartman, publisher of the Gartman Letter.

It's important that gold has failed to advance under circumstances that might otherwise have been considered quite bullish, Gartman said.

"Collapsing share prices would seem to be a positive for gold to many, but from our perspective, for the moment it is bearish instead," he said. "If Chinese shares continue under pressure, then Chinese buyers shall be reticent about buying gold, and may have little choice but to sell gold to raise cash and capital where needed."

On Thursday, the Dow Jones Industrial Average recovered from an early steep fall, as news that the manufacturing sector grew in February helped offset nervousness about Asian markets, distressed lenders and the housing market, which had all rekindled the heavy selling pressure seen two days ago.

"Depending on the magnitude of the decline we get in the Dow and the urgency of the rush for the liquidity exit doors again, gold may have a knee-jerk reaction once more to fears that money will not seek it, but perhaps bonds or Treasuries again," Nadler said.

"Today may just be a continuing link in the chain of volatility that could be with us for the next month or so."

Overnight, major Asian stock markets, including China, Japan and Hong Kong, ended lower. Investors focused on developments in Shanghai, where shares gave back about two-thirds of their gains from the previous day.

On the currency markets, Japan's yen resumed its rally against most major currencies Thursday, touching a 2 1/2-month high versus the dollar, on continued talk of carry-trade unwinding and worries about the outlook for the U.S. economy and global stock markets. The dollar rose against the euro after the manufacturing data.