Gold drops as the dollar strengthens on mounting European debt woes

Gold dropped on Monday trading as the dollar strengthened against a basket of major currencies on escalating European debt concerns, sparking a sell-off in commodities.

Last week, gold ended the week on advance as the dollar took a breather before it rebounded back at the beginning of the current week on pessimistic European debt news.

Spot gold is traded at $1505.27 an ounce after reaching a high of $1518.10 and a low of $1504.97, where the shiny metal may find support at $1500 psychological level.

On May 20, Fitch lowered Greece's credit rating by three levels to B+ from BB+, keeping the door opened for further cuts. In addition, Fitch revealed that the soft debt restructuring which is under review by European officials would provoke a default.

The previous week, ECB policy makers ruled out the idea of restructuring the Greek debt after a clash with political leaders as Greece struggles to repay debt, leaving the problem unsolved and the Greek government looking for other methods to stave off default.

Likewise, Standard & Poor's cut Italy's outlook to negative and mentioned that its credit rating is may be prone to a downgrade.

In turn, the euro fell against majors, especially the dollar, where EUR/USD opened on a gap. On the other hand, the dollar index, which tracks the dollar movement versus a basket of major currencies, rose to seven-week high to trade above 76.00 compared with the day's starting level of 75.75.

The greenback's rebound is putting pressure on commodities as oil also slipped to hover around $97.70 a barrel after opening today at $99.60.

Among other precious metals, platinum plummeted to $1753.70 from the day's opening of $1760.50, palladium edged down to $723.70 from $730.50 and silver retreated to $34.55 from $35.03, as of 07:40 GMT.