Gold prices eased a touch on Monday as concerns that the eurozone debt crisis will hurt global growth kept the euro under pressure, although the precious metal lifted from early lows as the single currency pared some losses against the dollar. Spot gold was down 0.1 percent at $1,597.59 an ounce at 1500 GMT. Earlier it fell as low as $1,582.84 an ounce as worries over further euro zone downgrades lifted the dollar.
The metal has seen decent physical buying since falling to a near 12-week low last week, dealers in Europe said. It went on to post its biggest one-week loss since late September as the dollar benefited from concerns over the eurozone debt crisis. While investors remain cautious, a recovery from those lows, particularly to back above the precious metal's 200-day moving average around $1,620 an ounce, could trigger more buying.
"I think gold investors could be lurking in the wings if we get a good move back above (there)," Saxo Bank senior manager Ole Hansen said. "The break last week has kept the market under some pressure but with no follow-through it could set the stage for some technical short-covering, which would trigger additional buying from investors."
The euro recovered to trade almost flat versus the dollar after earlier easing towards an 11-month low on concerns the eurozone sovereign debt crisis would hurt global growth.
Gold in recent months has been closely correlated to riskier assets as a funding squeeze forced investors to dump gold to cover losses elsewhere. Confidence in the precious metal remains fragile after a weak performance in the fourth quarter so far, with spot prices on track to post their first quarterly loss in more than three years.
Traders with an eye on the end of the year are likely to be loath to add to long positions at this stage, whatever their views of gold prices' longer-term direction, Mitsui & Co Precious Metals analyst David Jollie said. Money managers in gold futures and options cut bets on higher prices for a second consecutive week as gold prices fell sharply, the latest data from the US Commodity Futures Trading Commission showed.
"The need/desire to hold US dollars trumped gold's safe-haven attributes as liquidity became the overriding priority for investors," said Credit Suisse in a note. Demand for physical metal in the world's biggest gold consumer, India, was subdued on Monday as buyers postponed purchases in anticipation of bigger fall in prices, dealers said.
Lower prices were tempting some European buyers, however, traders said. "We have seen since last Wednesday very good demand for physical," said Afshin Nabavi, head of trading at MKS Finance. "It was still continuing this morning."
Analysts say gold may be vulnerable to further losses towards the end of the year and in early 2012, with no end yet in sight to the euro zone debt crisis and some improvement expected in the US economy, which should support the dollar. However, gold's underlying appeal as a hedge against currency market instability, an official sector reserve asset and a store of wealth in emerging economies is expected to prevent too steep a correction, they add.
Even after last week's correction, spot gold prices remain up 12.9 percent from the beginning of the year. US gold futures for February delivery were up $2.20 an ounce at $1,600.10. Among other precious metals, silver was down 2 percent at $29.11 an ounce, having fallen nearly 8 percent last week, tracking gold. Spot platinum was down 0.3 percent at $1,412.49 an ounce, while spot palladium was up 0.7 percent at $623.97 an ounce.