Updated from 12:31 p.m. EST

Geopolitical tensions and strong economic data provided opposing influences on the gold market Thursday, leading to a choppy trading session.

But in the end the economics won and February-dated bullion contracts closed down $5.20 at $628.10 an ounce on the Comex division of the New York Mercantile Exchange.

The exchange-traded funds that hold bullion were gaining, with streetTracks Gold Shares ( GLD) off 0.5% and iShares Comex Gold Trust ( IAU) edging 0.7% lower.

On the political side of the equation, Mahmoud Ahmadinejad, the president of Iran, was stirring things up in the Middle East with assertions that his country is ready for anything as it continues to defy the West in its pursuit of nuclear technology, the AP reports.

Some say the country's leaders are seeking to develop atomic weapons, while Tehran claims it only wants to beef up its ability to generate power.

Elsewhere, it seems that U.S. talks with North Korea over its push for nuclear arms have broken down after looking relatively positive a day ago. John Bolton, the one-time U.S. envoy to the Untied Nations, says progress will only come after Kim Jong-Il is ousted, according to press reports.

"It's a bit scary that they have nuclear capabilities," says James Moore, an analyst at TheBullionDesk.com. "I think North Korea and Iran and are going to add support for gold and possibly shake out some of the less convinced shorts."

Gold tends to rally on the prospect of instability and armed conflict, because some investors turn to it as a safe haven in times of crisis.

By the end of the session talk of geopolitics had subsided in favor of business. Back in the U.S., the economy continues to provide bullish economic news, which may auger a strong dollar for the foreseeable future, and hence a bearish environment for gold.

The Commerce Department says December housing starts grew a better-than-expected 4.5%, while the Labor Department says new claims for unemployment fell more than expected last week. December core consumer price inflation, excluding the volatile food and energy components, came in as expected, rising 0.2%.

Foreign exchange dealers weren't that impressed, owing to the view that the housing strength was related to the warm weather last month. The dollar was recently dipping against the euro, but rallying modestly against the yen.

One euro would buy $1.2958, vs. $1.2937 late Wednesday. A dollar would purchase 121.25 yen, up from 120.66 yen previously. Gold tends to move inversely in price with the dollar, and a strong economy will tend to lend support to the U.S. currency.

The economic data were robust enough to have at least one bear backpeddling.

"My view is currently that the probability of an outright recession is somewhat reduced," says Nouriel Roubini, professor of economics at New York University. "The risk of a 'growth recession' is still very high," meaning that the economy will advance, but at less than its potential rate.

A classic recession is typically defined as a contracting economy for two or more consecutive quarters.

Last year, Roubini had forecast a yearlong recession for 2007 and has steadfastly remained one of the most bearish commentators on Wall Street.

In the gold patch, the Chicago Board Options Exchange Gold Index was declining 2%, dragged down in part by a 2.6% drop in Freeport-McMoRan Copper & Gold ( FCX) and a 4% loss for Agnico-Eagle Mines ( AEM).

Freeport was suffering from falling copper prices, which shed 8 cents to close at $2.49 a pound on the Comex.

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