Gold prices fell 1 percent on Monday, extending the previous session's losses, as concerns intensified over the outlook for Spain ahead of a bond auction this week, denting appetite for assets seen as higher risk and hurting the euro.
Fears about Spain's ability to keep its finances under control sent the cost of insuring its debt against default to record highs, after data on Friday showed record borrowing by Spanish banks from the European Central Bank.
Spot gold was down 0.7 percent at $1,647.81 an ounce at 1110 GMT, off an earlier low of $1,640.64. Gold futures for June delivery were down $11.20 an ounce at $1,649.00.
Spot prices fell 1 percent on Friday as a stronger dollar and soft Chinese growth data prompted a wave of liquidation, pushing gold into soft territory from a chart perspective.
Multiple failures to close above the key resistance at 1686 has turned the hopes for a bullish breakout above 1700 in the near term, Richcomm Global Services analyst Pradeep Unni said.
Slower growth in China, a stronger U.S. dollar and less-than-anticipated demand from India has resulted in further pressure on gold.
The euro fell broadly on Monday, hitting a two-month low against the dollar and yen as Spain rekindled worries about the fragile state of the euro zone economy.
Yields on Germany's benchmark 10-year Bund, viewed as the euro zone's safest debt, hit a record low.
The euro has suffered from Spain's failure to convince investors it can contain its budget deficit, along with recent losses in the Spanish stock market as the effects of the ECB's one-trillion euro cash injection wane.
Concerns over the euro zone were a key factor behind the rise in gold prices last year, but have since been outweighed by the impact of a stronger dollar.
Gold trading volumes remain below last year's elevated levels, Swiss bank UBS said in a report on Monday, noting that average daily turnover on Comex gold contracts in April has been only 61 percent of March volumes.
Combined turnover on the Shanghai Gold Exchange for the two gold physical contracts is holding up, but a similar pause is noticeable, particularly against the sharp and steady uptrend seen last year, it added.
Current levels are by no means excessively weak, but the fact that average daily turnover sits at just about half of the 18 metric tonne (19.8 tons) all-time high seen last year is in itself confirmation that there is less gold fever in China this year versus last.
Money managers, including hedge funds and other large speculators, trimmed their net long exposure in gold by 8,674 to 109,511 contracts, and in silver, they cut 3,933 contracts to 14,905 contracts.
Silver was down 0.4 percent at $31.35 an ounce. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, held near its highest since late January.
The metal has struggled in the last year against weak fundamentals, as mine supply holds at record levels and industrial offtake fails to kick in.
The key downside risks for silver are that the weaker economic outlook in 2012 and 2013 will cut fabrication demand, but not enough to take prices back to levels that would deter anticipated strong mine production growth and a rising surplus, Morgan Stanley said in a note.
Spot platinum was down 1.6 percent at $1,569.74 an ounce, having earlier hit a near three-month low at $1,556.50. Spot palladium was down 0.1 percent at $638.73 an ounce.
Platinum underperformed other precious metals. Its discount to gold reached its widest in nearly two months, and the number of palladium ounces needed to buy an ounce of platinum slipped back to its lowest in nearly a month at 2.45.