Gold prices eased for the first session in seven after a victory for pro-bailout parties in Greek elections dampened speculation the country was set to exit the euro zone, boosting interest in assets seen as higher risk at the precious metal's expense.

But prices quickly recovered from lows as pessimism over the euro debt crisis returned. The euro, European stocks and Spanish and Italian bonds came under pressure, while so-called safe havens like German government bonds and the dollar recovered.

Gold has moved in line with nominally safer assets this month, since poor U.S. jobs data sparked speculation of more monetary easing from the Federal Reserve.

Spot gold was at $1,618.00 an ounce at 0835 EDT, down 0.6 percent but off an early low of $1,606.49. U.S. gold futures for August delivery were down $9.00 at $1,619.10.

The battle has been won, but the war is far from over, Commerzbank analyst Eugen Weinberg said. That's what the markets seem to be looking at this morning already, with the rally proving to be very short-lived. One would have expected it to last for at least the next couple of days.

It seems the market is still in a negative mood, so we are still expecting the slide on the commodity markets to continue. This is definitely helping gold.

Safe-haven German bunds recovered from lows to bounce higher, while 10-year Spanish government bond yields hit euro-era highs above 7 percent on persistent worries about Spain's fiscal and banking problems.

The euro surrendered early gains to retreat against the dollar, while European shares moved lower.  .EU

Attention now is turning to this week's monetary policy meeting of the Federal Open Market Committee. The response to the Greek election could potentially affect the FOMC decision, Barclays Capital said in a note.

(We) now expect the FOMC to ease policy further and see a short-term extension of (stimulus program) Operation Twist as the most likely outcome, it said. (That) would give the Fed a few more months to sort out whether the recent softness in data is ... payback for the warm winter weather or a more prolonged slowdown.

If the latter is the case, then more outright asset purchases that expand the balance sheet (QE3) would become likely, it said.


Gold's early price fall failed to tempt buyers in major consumer India back to the market, dealers said. Indian gold demand is likely to remain sluggish in coming months due to lack of weddings and festivals during the wet monsoon season.

Buying is slow as prices are still high, Ketan Shroff, director at Mumbai gold wholesaler Pushpak Bullion, said. People are waiting for (a) correction.

Elsewhere data showed money managers raised net length in gold by around 1 percent in the week to June 12 as signs of a slowing in the U.S. economic recovery fuelled speculation of monetary stimulus from central banks around the world.

Holdings of gold-backed exchange-traded funds tracked by Reuters rose last week, with the largest, New York's SPDR Gold Trust, recording an inflow of 2.6 tonnes.

Among other precious metals, silver was down 1.3 percent at $28.29 an ounce.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose towards its highs for the year on Monday, breaking back above 56, as silver underperformed.

Although investment demand has tapered off lately in the silver market, we still expect a lengthy period of negative real interest rates in the United States to underpin a solid core of investment demand for silver as a non-yielding asset, even in the absence of a renewed round of QE, Morgan Stanley said in a note.

Spot platinum was up 0.1 percent at $1,476.99 an ounce, while spot palladium was up 0.3 percent at $625.25 an ounce.