Gold slipped in Europe on Monday, surrendering some of the previous session's more than 1 percent gains, as the dollar firmed and investment flows into the metal dried up as concerns over euro zone risk receded.
Spot gold was bid at $1,205.35 an ounce at 1132 GMT, against $1,211.85 late in New York on Friday. U.S. gold futures for August delivery eased $3.70 an ounce to $1,206.10.
The precious metal had risen sharply since the start of the year, hitting a record $1,264.90 an ounce in June as worries over euro zone sovereign debt and consequent instability in the currency markets fueled strong safe-haven buying by investors.
However, that investment has petered out as such concerns have retreated.
The sovereign risk situation has eased, said Peter Fertig, a consultant at Quantitative Commodity Research. Greece is making progress, they have implemented pension reforms, which was one of the crucial reforms to implement.
Indications for bank stress tests are positive, which also indicates fears have been overdone, he added. For that reason, there is very little to remain in gold, so I expect prices could trade down.
The world's largest bullion exchange-traded fund, New York's SPDR Gold Trust, reported a 1.5-tonne retreat in its holdings on Friday, showing reduced appetite for gold. Its total holdings have fallen nearly 6 metric tones so far in July.
Physically backed ETFs found favor with investors in the financial crisis, as they were seen as a safe haven at a time other assets classes were prone to quickly losing value. Inflows especially surged in early 2009 and the second quarter of 2010.
Data released by the Commodity Futures Trading Commission also showed non-commercial net long positions in New York gold futures and options fell 41,642 to 231,381 in the week to July 6.
The gold book has now retraced back to its early April levels, when the metal was trading south of $1,150, said UBS analyst Edel Tully.
This effectively means that all exchange positioning related to heightened sovereign risk has now been removed, which makes sense given that investors currently place less likelihood on the risk of a sovereign default.
Better appetite for nominally higher-risk assets was shown in a further rise in equity markets overnight in Asia, though stocks later retreated in Europe as miners fell, tracking weaker base metals prices.
Copper prices fell more than 1 percent in London on Monday as China reported a drop in copper imports for the third straight month in June. Among other commodities, oil prices also retreated below $76 a barrel.
The euro fell against the dollar on Monday, pulling away from a two-month high as concerns about the effectiveness of stress tests on European banks prompted investors to trim long positions in the single currency.
While surging risk aversion benefited both gold and the dollar earlier this year, gold is more typically pressured by gains in the U.S. unit, which makes the metal more expensive for holders of other currencies.
Among other precious metals, silver was at $17.99 an ounce against $18.06, platinum at $1,519.30 an ounce against $1,529 and palladium at $452.60 against $456.50.
(Editing by Alison Birrane)