Gold fell 1 percent amid heavy trading volume on Tuesday, as the euro's slide on worries over Spain's debt prompted investors to sell the precious metal, which fell more than oil and agricultural commodities.
Bullion rose in early trade and then erased those gains as the euro tumbled below $1.25 to hit its lowest in nearly two years after credit agency Egan-Jones downgraded Spain's sovereign credit rating. U.S. equities trimmed gains and other commodities dropped.
Gold was headed for a monthly decline of nearly 7 percent in May, which would be its fourth straight monthly decline, the longest stretch since January 2000. It would also be the steepest monthly slide of 2012.
Bullion's investment appeal has been more than offset by the strength in the U.S. dollar and Treasuries, also viewed as safe havens by investors.
That trade which is directly tied to the euro weakness, and has made gold so significantly volatile, is going to have a short-term negative impact on gold, said Jeffrey Sica, chief investment officer of SICA Wealth Management LLC.
People are trading out of gold based on the euro weakness, but they will buy back into gold based on fear, said Sica, who manages $1 billion in client assets.
Spot gold was down 1.2 percent at $1,553.29 an ounce by 1:45 p.m. EDT (1745 GMT).
U.S. gold futures for June delivery were down $16.20 at $1,552.70 in heavy trading boosted by month-end book-squaring as U.S. traders returned after Monday's Memorial Day holiday.
Volume topped 430,000 lots, preliminary Reuters data showed, near a 2012 high of 470,000 contracts traded on January 26.
Earlier in the session, gold hit a high of $1,582.40 as U.S. equities initially jumped 1 percent on a mixed bag of data including higher home prices but a four-month low in consumer confidence.
EUROPE'S DEBT, PAYROLLS EYED
Persistent worries about Europe prompted investors and speculators last week to make their most aggressive bet against the euro since the inception of the single currency.
Investors are worried about Spain's escalating borrowing costs and weakening banking sector and Greece's election next month. Mike Zarembski, senior commodity analyst at online brokerage optionsXpress Inc, said gold might rally if Greece leaves the euro zone, as other safe currencies such as the U.S. dollar are plagued with their own problems.
Attention is already shifting towards U.S. employment data due Friday. The non-farm payrolls report is expected to show the world's largest economy added 150,000 new jobs in May.
Among other precious metals, silver fell 1.9 percent to $27.87 an ounce. Spot platinum was down 0.7 percent at $1,422.74 an ounce, while spot palladium eased 0.2 percent at $599.72 an ounce.