June 27, 2011 / 21:16 IST
Gold held near USD 1,500 an ounce on Monday as concerns over heavily indebted Greece helped the precious metal recover from its lowest in nearly six weeks, which it hit earlier amid broad-based selling of commodities.
Simmering worries over this week's Greek parliamentary vote on austerity measures and its impact on a European Union bailout package are preventing a steeper fall in prices, analysts said.
Spot gold was bid at USD 1,500.36 an ounce at 0931 GMT, against USD 1,499.53 late in New York on Friday. US gold futures for August delivery rose 30 cents an ounce to USD 1,501.20.
"In the short term, it is the usual story. Gold gets caught up as a commodity, and rallies as a currency," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
Gold fell as low as USD 1,490.90 an ounce in early trade as oil and industrial metals extended last week's hefty falls. US crude oil futures fell towards USD 90 a barrel after the International Energy Agency said it would release emergency reserves, and copper, zinc and lead prices also slipped.
Commodities are coming under pressure from gains in the dollar and concerns that eurozone debt problems could cause further ructions in the currency markets.
But worries over eurozone debt are continuing to underpin gold, even as they weigh on the euro.
A Greek minister warned on Monday of "catastrophe" if parliament blocked a 28 billion-euro (USD 40 billion) package of tax increases and spending cuts in a parliamentary ballot expected on Wednesday.
Investors have been selling the euro and buying dollars to minimise risk. Germany's deputy finance minister said on Monday the euro is in danger of losing credibility.
Commodities sold heavily
Worries over sovereign risk contagion on the eurozone were a key factor pushing gold prices to record highs earlier this year, though they were not enough to prevent the precious metal being caught up in heavy selling of commodities last week.
"We do not expect the price to retreat much further," Commerzbank said in a note. "This week sees the debate and vote on the austerity measures in Greece, with ratification a condition for additional financial support. It is still uncertain whether parliament will give its approval."
Money managers raised bullish bets in COMEX gold futures and options to the highest level since the week of April 24 in the week ended June 21, as bullion climbed to within USD 20 of its record peak, data from the Commodity Futures Trading Commission showed on Friday.
Speculators in silver futures and options also upped their net long positions, as safe-haven demand for precious metals grew in response to disappointing economic data from the United States and persistent concerns surrounding Europe's debt crisis.
Physical gold demand, especially from Asian buyers, picked up as prices fell towards multi-month lows, but this is unlikely to put the brakes on gold's correction for long, traders said.
"There has been good demand on the dips and I think that will continue, but that is not going to be enough on its own right, if people are in liquidation mode, to reverse a downward trend," said Weeks.
Silver was bid at USD 34,02 an ounce against USD 34.26, reflecting losses in other industrial metals. Platinum was at USD 1,677.24 an ounce against USD 1,672.99, and palladium at USD 727.95 against USD 726.80.
