Gold fell more than 2 percent on Wednesday as a wave of selling triggered by better-than-expected US home sales and heightened by despair surrounding the euro zone sent prices toward key technical support levels and wiped out year-to-date gains.Spot prices dropped as low as $1,534.25 an ounce, down 2.15 percent, by 12:08 pm EDT (1608 GMT), flirting with a bear market with a drop of 20 percent from September record highs.
Market players are watching whether gold can hold key technical support at $1,525 an ounce. The sell-off took bullion back to December lows hit in last week's rampant selling and reignited concerns that a recovery in recent days was a "dead-cat bounce", slang used to describe a small, temporary rally that follows a significant decline.
US gold futures for June delivery lost 2.44 percent at $1,538.1. Bullion was heading for its largest daily drop in two weeks as investors swept money out of the euro and commodities and piled into safer assets such as the dollar and bonds amid concerns Greece will leave the euro zone and doubts about the outcome of a European summit later in the day.
A larger-than-expected rise in US single-family home sales in April struck a further blow to gold, knocking hopes of fresh economic stimulus from the US Federal Reserve. "The most likely scenario is there will be some kind of progress around the Greek situation, and therefore, these markets will rebound once this happens. But no one knows exactly what the timing is and that is the problem," said Daniel Smith, an analyst at Standard Chartered.
"Gold is acting more as a risky asset, and everything is tumbling this morning ahead of this (European summit), where nothing good is really expected," Societe Generale analyst Robin Bhar said. The summit is expected to discuss growth-boosting proposals and the idea of a joint euro zone bond. French President Francois Hollande supports such a bond plan but German Chancellor Angela Merkel is opposed.
Gold may encounter some turbulence over the coming trading session ahead of the expiry of monthly US options. Most open interest, which reflects investor positioning, is located at $1,550.00 and $1,600.00, with a firm bias toward bearish bets on future price movement.
In India, the world's largest gold consumer, demand stayed muted after prices in the local market rose as the rupee fell to a record low, increasing the cost of imports. Gold scrap sales are also rising, analysts said. Silver was down 2.95 percent at $27.30 an ounce, while spot platinum fell 1.81 percent to $1,412.99 an ounce, its lowest level since early January. Spot palladium lost 2.49 percent at $591.22 an ounce. Platinum matched the five-month low of $1,416.70 an ounce it fell to last week as the strong dollar and worries that demand from the European car market would remain weak offset the impact of a strike at the world's largest platinum mine.
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