Gold prices slipped in Europe on Monday, extending the previous session's 2 percent price drop, as concerns over the progress of talks on a Greek bailout weighed on the euro and on assets seen as higher risk such as stocks and commodities.
Spot gold was down 0.5 percent at $1,717.90 an ounce at 5:19 a.m. ET, while U.S. gold futures for February delivery were down $19.20 an ounce at $1,721.20.
The euro fell as Greek politicians struggled to agree on austerity measures needed to secure a new bailout for the debt-laden nation, keeping alive the risk of a messy default that could hurt the euro zone.
It's been a bit of a rollercoaster, the relationship between gold and the euro. One day it's positive, one day it's negative. But this morning, dollar strength, or euro weakness, is clearly affecting gold, said RBS analyst Nikos Kavalis.
The Greek government and party leaders must agree on the terms of a second bailout with IMF and EU inspectors before euro zone finance ministers next meet, a government official said on Monday.
Although the debt crisis was a major driver of record-high gold last year as investors bought the metal as a haven from risk, prices this year are likely to keep moving in line with so-called riskier assets including other commodities, Kavalis said.
Safe-haven buyers still exist, they're just far less of a force that they were at the peak of the sovereign debt crisis, he said. For the time being, we see gold over the next few months appreciating with other commodities.
Its inflation-hedging properties, its anti-ultra loose monetary policy (qualities) are in our view what will drive gold. Risk in the market is one of the supporting factors, but the monetary policy outlook is really the key factor.
The precious metal posted its worst daily performance of the year on Friday after better-than-expected jobs data dampened expectations of another round of U.S. monetary easing.
It is still up nearly 10 percent this year, but if more signs emerge that the economy in the United States is recovering faster than in the euro zone, pointing to an earlier-than-expected rise in U.S. interest rates and a stronger dollar, gold may struggle to revisit its highs.
STOCKS, COMMODITIES EASE
On other markets, European shares fell back from a six-month peak on Monday due to fears about Greece. .EU
Greece's travails also pressured the broader commodities markets, pushing crude oil prices lower and weighing on industrial metals such as copper and aluminum.
Demand for physical gold from key Asian markets was strong, however, as buyers took advantage of Friday's price drop to re-enter the market.
There is some buying after Friday's fall in prices, said Harshad Ajmera, proprietor of JJ Gold House in Kolkata. People are comfortable at these rates.
Gold coin retailers and physically backed investment products such as exchange-traded products also had a strong start to the year. The U.S. Mint reported its best monthly sales of American Eagle gold coins in a year in January.
Gold held across the physically backed ETPs rose by 20 tonnes last week, (and) preliminary inflows for January are 24.5 tonnes, mostly reversing the net redemptions in December, said Barclays Capital in a note.
Total metal held across the products has reached 2,404.6 tonnes and is now just 1.3 tonnes shy of the peak reached in early December.
Silver prices eased in line with gold to $33.38 an ounce, down 0.6 percent. Spot platinum was down 1.1 percent at $1,599.99 an ounce, while spot palladium was down 1.7 percent at $692.95 an ounce.
Last Friday's upside surprise in U.S. employment data was positive for palladium as it was for risk in general, said UBS in a note. The fact that palladium has greater exposure to the U.S. auto market and therefore benefits from improving economic prospects was well reflected in the metal's outperformance.
The slow improvement in investor sentiment for palladium and the expansion in positioning, though influenced by risk appetite, is an expression of market participants' expectations for positive fundamentals up ahead.