GIF and PNG8 do not support partial transparency. Your image has at 
least 3 shades of transparency, black, white and gray. You will lose 
the transparency where the alpha channel is gray.

I think you are out of luck. You need full 32 bit png. The only other 
choice is to flatten the image and convert to jpg or some png or gif 
without transparency and fewer colors.


try

convert watch.png -background gray -flatten watch_flat.gif
about 80K


convert watch.png -background gray -flatten watch_flat.jpg
about 40K
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