Gold eased in Europe on Monday, falling for the fourth time in the last seven sessions, as improved investor confidence boosted the dollar and sapped investment flows into the precious metals complex.

Spot gold was bid at $1,203.85 an ounce at 1440 GMT, against $1,211.85 late in New York on Friday. U.S. gold futures for August delivery eased $5.60 an ounce to $1,204.20.

Gold prices hit record highs in late June as concern over European sovereign debt levels and instability in the broader financial markets fueled a surge in safe-haven investment.

But as these concerns have subsided, as has investors' appetite for gold, at least for now.

Allaying anxiety over some euro zone sovereign debt Greece said it almost halved its central government budget deficit in the first six months of the year as drastic spending cuts outweighed weaker than expected tax revenues.

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.

In the meantime the world's largest bullion exchange-traded fund, New York's SPDR Gold Trust, reported a 1.5-tonne fall in its holdings on Friday, which reflected 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 pulled back from two-month highs against the dollar as concerns about the effectiveness of stress tests on European banks prompted investors to trim long positions in the single currency.

While 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.

But Andrey Kryuchenkov, a precious metals analyst with VTB Capital said he believed the positive correlation between gold and the U.S. dollar would likely reassert itself, especially as the macroeconomic backdrop which prompted the safe haven push into gold and the dollar was unchanged.

Even though the dollar is trying to stabilize at the moment and the euro is stalling, gold is still strongly correlated to the dollar. Any dollar rebound is likely to signal a gold rebound as well because that correlation is here to stay for now, Kryuchenkov said.

Among other precious metals, silver was at $17.97 an ounce against $18.06, platinum at $1,518.40 an ounce against $1,529 and palladium at $452.60 against $456.50.

(Editing by Keiron Henderson)