(REUTERS) -- Gold steadied in Europe on Thursday after falling to a four-month low in the previous session, as an uptick in the euro after Spain moved to clean up its banks and Europe's bailout fund approved a key payment to Greece took some pressure off prices.
While the euro zone debt crisis is continuing to simmer, moves to address some of its problems are improving appetite for assets seen as higher risk, like stocks and commodities, as well as the single currency.
Spot gold was at $1,589.40 an ounce at 05.26 a.m. EDT against $1,590.45 late on Wednesday, when it fell as low as $1,579.30 an ounce, its weakest since early January.
Prices have fallen 3 percent this week as concerns over the euro zone debt crisis pressured the euro and other risk assets. While investors bought gold as a haven from risk during the debt crisis last year, it is now trading more in line with its traditional drivers, the dollar and other commodities.
Gold seems to be currently trading more as a risky asset than a safe haven, Anne-Laure Tremblay, an analyst at BNP Paribas, said. While the U.S. dollar has gained on the back of higher risk aversion, gold was sold off.
The decline is likely a consequence of liquidation in the paper market rather than lack of interest on the physical side.
The euro edged off a 3-1/2 month low against the dollar on Thursday, snapping eight sessions of losses, as stress in Spanish debt markets abated and after Greece secured funds needed for bond repayments, tempering the threat of a Greek insolvency and possible euro exit.
Gold has a close negative correlation with the dollar, strength in which makes commodities priced in the U.S. unit more expensive for other currency holders and curbs gold's appeal as an alternative asset.
While it has outperformed the euro so far this year - the single currency is down 3 percent versus the euro, while gold is up 1.5 percent - dollar strength is weighing heavily on prices.
For the time being I really cannot see the euro rallying strongly, and this in turn will hinder the upside in gold, commodities brokerage Marex Spectron said in a note.
For today, we have various figures and also our old friend Mr Bernanke will be giving us the benefit of his wisdom at 1330 (BST) this afternoon. Figures include the U.S. Trade Balance and Import Price Index at 1230. So no doubt we will see some volatility during these events.
INDIAN GOLD IMPORTS DECLINE
India's trade secretary said on Thursday its April gold imports fell to $3.1 billion from $4.7 billion a year ago. Demand in the world's biggest gold consumer has been hurt by changes to import duties, a weak rupee and high spot prices.
Some fresh buying was seen in India after bullion's price fall, but interest was tentative. Chinese and Indian interest in gold will likely be boosted by the latest fall in price. However, a rebound in physical demand will likely not be enough to fuel a sustained rally, BNP Paribas' Tremblay said.
Goldman Sachs meanwhile reiterating its constructive price view on Thursday. It said weak U.S. growth and renewed euro zone risks, coupled with resilient physical demand, were positive for the metal.
It is... increasingly apparent that already low market expectations will likely require continued deterioration in Europe or in the United States to trigger a sharp inflow into gold, it said in a report on Thursday.
We believe that mid-June will likely be a key period for gold prices, given the June 19-20 FOMC meeting, the likely discussion of a 'Growth Compact' at the EU summit on June 28-29, and, if no coalition is formed in Greece, a new general election likely on June 17, it added.
Among other precious metals, silver was down 0.5 percent at $29.08 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest in nearly four months on Thursday at just below 55, as silver underperformed as expected in a weak gold market.
Spot platinum was down 0.3 percent at $1,486.74 an ounce, while spot palladium was up 0.4 percent at $610.97 an ounce.