Medallion is 14K gold (58.3%). Other metals alloyed include copper which can cause lower grade gold to tarnish. That's likely what happened here.

It can be polished and the yellow gold will shine again. Doing so removes some metal.

If this were my watch, I'd leave it alone.
gatorcpa

 

Here's another example of the same type of tarnish:



Note how sharp the edges are on this case. It likely has never been polished. Also notice how the gold-capped case is tarnishing in a similar manner. 14K gold can and does tarnish.
gatorcpa

 

I absolutely agree, which is why most examples have a more yellow color on the observatory. The constant rubbing against your skin would minimize toning of the copper.

Watches like the two shown above were likely not worn very much at all. They likely spent most of their lives in their box or a sock drawer.

A couple of my gold-capped Constellations are developing a similar patina, now that I store them in original style boxes.

I suspect that there is some slight acidity being leached out of the felt and causing chemical reactions with copper or silver in the alloy.
gatorcpa