Gold fell almost 2 percent on Thursday as worries about a disordered bankruptcy in Greece and a deepening debt crisis in Italy weighed on market sentiment and pushed investors to liquidate commodity assets, including precious metals. The euro briefly extended gains versus the US dollar after data showed new claims for unemployment benefits declined for a second straight week in the Unites States, and as easing Italian bond yields prompted investors to take on a little more risk.
The dollar however, trimmed losses shortly after, pushing gold to a session low of $1,739.7 an ounce. Spot gold traded at $1,743.59 an ounce by 1511 GMT, down 1.44 percent from $1,769.54 late in New York. Gold has confounded market watchers by refusing to behave like a safe-haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs.
"Broader trading is jittery but gold is more supported," said analyst Andrey Kryuchenkov of VTB Capital. "If the dollar weakens and the broader market is more risk-friendly gold will track it. If uncertainty remains, gold will be supported by safe haven buying." Italy moved closer to a national unity government on Thursday, following Greece's lead in seeking a respected veteran European technocrat to pilot painful economic reforms in an effort to avert a eurozone bond market meltdown.
New York's SPDR Gold Trust, the biggest gold-backed ETF, said its holdings rose 0.24 percent on Wednesday from Tuesday, while that of the largest silver-backed ETF, New York's iShares Silver Trust gained 0.26 percent. "Physical gold demand is strong in some parts of Europe," Kendall said. "Other precious metals such as platinum and palladium however are suffering with what is going on in the auto sector; floods in Thailand have caused serious disruptions in Asia. There is no real sense that we'll have a turning point for PGMs (platinum group metals) for the moment." Silver lost 2.14 percent to $33.31 an ounce while platinum fell 1.29 percent to $1,604.8 an ounce and palladium fell 1.40 percent to $635.47 per ounce.