LONDON - Gold fell for the first day in seven on Monday after a victory for pro-bailout parties in Greek elections dampened talk that country may exit the euro zone, although it lifted from lows on pessimism over the euro-zone crisis and its possible impact on the US.
After an early bounce, the euro, European stocks and Spanish bonds came under pressure, while so-called safe havens such as German government bonds and the dollar recovered. Gold has moved in line with less risky assets this month, since poor jobs data sparked talk of a further round of US quantitative easing (QE).
Spot gold was at $1621,59 an ounce at 2,33pm GMT, down 0,4% but off an early low of $1606,49. US gold futures for August delivery were down $5 at $1623,10.
Financial markets' relief at the Greek vote was offset by worries over its unresolved problems, the lack of a clear plan for the euro zone as a whole, and uncertainty ahead of meetings of the Federal Reserve and Group of 20 this week.
"The fact that risk appetite has not rebounded more decisively after the Greek elections may suggest the markets will push for a broader solution for the euro zone, one that would remove the contagion risk from Spain and Italy in particular," BNP Paribas analyst Anne-Laure Tremblay said. "Gold seems to be waiting for the Fed meeting on Wednesday. It is more sensitive to central bank action than to variations in risk appetite."
An early positive reaction to the election result petered out on Monday. Safe-haven German Bunds recovered from lows to bounce higher, while 10-year Spanish government bond yields hit euro-era highs above 7% on persistent worries about Spain's fiscal and banking problems.
"The battle has been won, but the war is far from over," Commerzbank analyst Eugen Weinberg said. "The rally (has proved) to be very short-lived. One would have expected it to last for at least the next couple of days."
The euro surrendered early gains to retreat against the dollar, while European shares moved lower. US stocks also fell at the open as rising Spanish bond yields indicated mounting fear of contagion from the euro-zone debt crisis.
Attention now is turning to this week's monetary policy meeting of the Federal Open Market Committee (FOMC).
"As the most immediate threat from Europe somewhat eases for now, gold's hypersensitivity to developments Stateside will likely be reinforced," UBS said in a note. "The market will be keenly tuned into the FOMC meeting, which concludes on Wednesday. Participants will be looking for confirmation that whatever QE premium gold has managed to hold on to over the past few weeks is indeed warranted."
WAITING FOR A CORRECTION
Gold's early price fall failed to tempt buyers in major consumer India back to the market, dealers said. Indian gold demand is likely to remain sluggish in coming months due to the lack of weddings and festivals during the wet monsoon season.
"Buying is slow as prices are still high," said Ketan Shroff, director at Mumbai gold wholesaler Pushpak Bullion. "People are waiting for a correction."
Elsewhere, data showed money managers raised net length in gold by about 1% in the week to June 12 as signs of a slowing in the US economic recovery fuelled speculation of monetary stimulus from central banks around the world.
Holdings of gold-backed exchange traded funds tracked by Reuters rose last week, with the largest, New York's SPDR Gold Trust, recording an inflow of 2,6 tons.
Among other precious metals, silver was down 0,1% at $28,72 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose towards its highs for the year on Monday, breaking back above 56, as silver underperformed.
"Although investment demand has tapered off lately in the silver market, we still expect a lengthy period of negative real interest rates in the US to underpin a solid core of investment demand for silver as a non-yielding asset, even in the absence of a renewed round of QE," Morgan Stanley said in a note.
Spot platinum was up 0,1% at $1477,35 an ounce, while spot palladium was up 0,6% at $626,65 an ounce.