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NEW YORK, April 2 Dow Jones

April 03 2013, 08:15AM

Gold prices fell to their lowest level in nearly four weeks, and silver slumped to an eight-month low, as investors set aside worries about Europe and sought higher returns in other assets.

Silver also was pressured by signs of a stumbling industrial economy that cast doubt on demand prospects for the metal in electronics.

The most actively traded gold contract, for June delivery, fell $US25, or 1.6 per cent, to $US1,575.90 a troy ounce on the Comex division of the New York Mercantile Exchange, its lowest settlement in nearly four weeks.

The drop was the largest for gold in dollar and percentage terms since February 20.

"A malaise has set in in precious-metals markets," said Kurt Pfafflin, a senior broker with Daniels Trading.

The Cypriot bailout negotiations last month drew some gold buyers who sought the metal as a safe haven amid uncertainty about the euro-zone's future.

Gold prices climbed above $US1,600, but the boost proved to be fleeting after Cyprus's banks reopened last week in mostly calm conditions. In 2013, gold futures are down six per cent.

Meanwhile, the US economy has steadied and equities markets are rallying to new highs, drawing investors with the promise of higher returns. Gold holdings, which don't pay interest or dividends, tend to suffer by comparison.

"The metals continue to suffer as funds flow out of the safe-haven assets and into the US equity market," Kitco Metals trading director Peter Hug said in a note.

Analysts with Societe Generale said in a report Tuesday that gold prices would likely continue to fall as the year wears on, reaching $US1,375 a troy ounce by December.

They cited expectations for low US inflation, a stabilising global financial system and a recovering US economy.

"It seems unlikely that investors would want to add much to their (bullish) gold positions in this context," the analysts said.

Silver for May delivery fell 69.6 cents, or 2.5 per cent, to $US27.248 a troy ounce on the Comex, the lowest settlement since August 2.

Even though some parts of the US economy have been boasting improvement, manufacturing in the US, and in China, expanded by less than economists had expected last month, separate reports released Monday showed.

The readings were followed Tuesday by data showing euro-zone factory activity continued to contract in March.

That means silver has been hit by both sides risk-taking investors who are on the hunt for higher yields have abandoned save-haven metals; industrial users of silver have seen less demand for their products.

Silver "has just been unable to get up off the mat here," Daniels Trading's Mr Pfafflin said.

"Negative readings around the world have cut into the industrial demand side."

Silver is used in solar panels, cars and consumer electronics, and market prices can track expectations for economic growth.

On Monday, silver slipped into bear-market territory, generally defined as a drop of more than 20 per cent from a significant recent peak. The benchmark futures contract Tuesday settled down 22 per cent from the market's October 4 high.