Gold eased on Tuesday as the euro slid to a two-week low against the dollar, but moves were muted ahead of this week's European Union summit, with investors awaiting more clarity on how euro zone leaders will tackle the bloc's simmering debt crisis.
Prices slid below $1,600 an ounce last week after the Federal Reserve disappointed those who had expected more aggressive stimulus measures to kick-start growth, a move that would have kept up pressure on long-term interest rates.
They have since found little impetus for a recovery, as the euro continues to fall and as concerns over the outlook for Spain and Greece keep up pressure on the wider markets.
Spot gold was down 0.3 percent at $1,579.70 an ounce at 1251 GMT, while U.S. gold futures for August delivery were down $8.00 an ounce at $1,580.40.
Gold is capped on the upside by disappointment post-Fed, while on the downside, we have some bargain hunting, and a bit of physical buying into the troughs, Societe Generale analyst Robin Bhar said.
We are stuck in a fairly small range here, in the 1570-1600 area, certainly until the weekend when we will get to hear more on how the euro zone will be (tackled).
The two-day summit in Brussels on June 28-29 will be the 20th time EU leaders have met to try to resolve a crisis that has spread across Europe since it began in Greece in early 2010.
Risk aversion was elevated in the financial markets after a formal request from Spain for European funds and Moody's mass downgrade of 28 of its banks, plus news that Cyprus had become the fifth euro zone nation to request a bailout.
The euro declined and stock markets fell, while Spanish bond yields rose after demand at a bill sale fell despite the higher returns on offer to investors.
Time is running out for policymakers in the euro zone to announce specific steps to closer fiscal integration and a detailed plan for tackling the debt crisis, VTB Capital said in a note.
Leaders in the monetary union will have to move quickly, otherwise sentiment is likely to remain negative and the dollar would only hold higher as pressure on gold prices resumes yet again.
OFFICIAL SECTOR INTEREST STRONG
Demand for physical gold was light in major consumer India, although supplies of recycled gold being returned to the market slowed a touch. Indian gold prices have risen more than 5 percent since March as the rupee declined, curbing demand.
Official sector interest is still underpinning the market, meanwhile. Russian, Turkey, Kazakhstan and Ukraine all bought gold last month, data from the International Monetary Fund showed on Tuesday.
Among other precious metals, spot silver was down 0.9 percent at $27.28 an ounce. Spot platinum was down 0.3 percent at $1,430.25 an ounce, while spot palladium was down 0.7 percent at $598.20 an ounce.
The platinum/palladium ratio, which measures the number of palladium ounces needed to buy an ounce of platinum, rose to its highest in a month on Tuesday at 2.4, as platinum outperformed.
Platinum, which underperformed gold last year as the economic crisis curbed interest in industrial metals while burnishing bullion's safe-haven appeal, has been the best performer of the four main precious metals so far this year.
Prices are up 2.7 percent from January, against a 1.3 percent rise in gold and an 8.3 percent decline in palladium. They remain more than $500 off 2008's record high, however, and at a historically unusual $150 discount to gold.
Recent production cuts in major producer South Africa have not been enough to turn that around.
Although the current level of cuts may not be enough to drive platinum group metals prices significantly higher, we believe they will help establish a floor in platinum and palladium at $1,400 and ounce and $600 an ounce respectively, HSBC said in a note.
Further production cuts could capture investors' attention and begin to push PGM prices higher.