Gold remains lower

Gold fell for a second day on Wednesday, driven lower by the euro which in turn came under pressure from investor concern that a European Union meeting later in the day would not yield a lasting solution to the debt crisis. Wariness in the financial community ranging from the possibility the debt crisis could see Greece ejected from the single currency bloc to Spain needing a bailout for its banks or Italy struggling to fund itself pushed the euro to 21-month lows and sharpened investors' preference for the dollar as a safe haven.
The dollar, along with German bond futures, benefited from a flight from riskier assets, including stocks and commodities such as copper and oil. Spot gold was down 0.7 percent at $1,556.31 an ounce at 1357 GMT while US gold futures for June delivery were down 1.3 percent at $1,556.20.
"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's major headwind has come from its tight negative correlation to the US dollar, which reached its most negative in a month on Wednesday, meaning the two assets were more likely to move inversely to each, wherby a rise in the US currency proves even more damaging to gold than it would have been as recently as a week ago. "Gold is acting more as a risky asset, and everything is tumbling this morning ahead of this informal finance ministers meeting, where nothing good is really expected," said Societe Generale analyst Robin Bhar.
The informal European leaders summit set for Wednesday is expected to discuss growth-boosting proposals and the idea of a joint euro-zone bond. French President Francois Hollande supports the bond plan but German Chancellor Angela Merkel is opposed. Concerns over the prospect of debt-laden Greece exiting the euro zone to avoid unpopular austerity measures have grown ahead of an election there on June 17 which could hasten its departure from the single currency bloc if voters back anti-bailout parties.
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 towards bearish bets on future price movement. Puts, options that give the holder the right, but not the obligation, to sell a predetermined amount of an asset at a set price by a certain date, outnumber calls, or buy options, by nearly 2:1. Because the underlying June futures price was trading roughly between $1,550 and $1,600, where most at-the-money open interest was clustered, it was not clear which would exert a greater gravitational pull on the gold price, traders said.
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. "India's scrap gold sales have picked up by 30 percent in the span of just one week as gold prices in local terms surged," HSBC said in a note.
Silver was down 1.8 percent at $27.62 an ounce, while spot platinum was down 1.2 percent at $1,421.25 an ounce and spot palladium down 0.7 percent at $602.22 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 an ongoing strike at the world's largest platinum mine.