Gold prices dropped on Wednesday as easing worries over a potential bigger fallout from the global banking crisis increased appetite for riskier assets and dampened demand for the safe-haven metal.

Spot gold was trading 0.33 per cent lower at $1,965.42 per ounce, as of 9.40 am UAE time.

In the UAE, the 24K gold was trading at Dh238.0 per gram at the opening of the market on Wednesday. Meanwhile, 22K, 21K and 18K opened at D220.5, Dh213.25 and Dh182.75 per gram, respectively.

"We've seen a natural retracement ... gold is pulling back after a failed 'bid' to break above $1,975," said Matt Simpson, a senior market analyst at City Index.

But some investors "still seem to be holding onto gold 'just in case' there's another skeleton or two lurking in the closet," he said and that gold might catch another bid heading into the European session.

Alex Kuptsikevich, a senior market analyst at the FxPro, said the yellow metal stormed $2,000 twice last week, but both attempts failed to consolidate above this significant round level. The double correction since the previous week clears the way to the upside but does not signal that gold is in trouble.

“The momentum of gold's rally from the lows of the eighth pushed it up by over $200 at its peak, creating a short-term overbought situation. Last week, the brief touch below $1,940 was too quick and impulsive to pave the way for upward movement,” he said.

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