LONDON: Gold eased a touch on Monday as a retreat in the euro arrested the metal's rebound from its 2012 lows, but prices remained supported near $1,600 an ounce as investors bet the metal's price correction had been overdone.
Spot gold was down 0.2 percent at $1,588.69 an ounce at 1220 GMT, while US gold futures for June delivery were down $3.30 an ounce at $1,588.60.
Last week, gold fell to its lowest this year at $1,527 an ounce, before staging its biggest two-day rally since October as traders holding short positions rushed to cover.
"I suspect that what we saw last week was partly short covering, and that has helped us on the way up, with maybe a little bit of extra safe-haven interest," Mitsui Precious Metals analyst David Jollie said.
"In the next few weeks leading up to the Greek election, there will be plenty of opportunities for people to worry about the European debt situation and the health of the euro in general. I think that will be positive for gold, certainly in the absence of foreign exchange movements."
"The short covering is probably a one-off issue, so the strength of this move will be interesting to gauge as a measure of safe-haven interest," he added.
Simmering concerns over the euro zone debt crisis have stoked some demand for physical metal as a safe store of value in Europe, dealers said, but bad news from the euro zone also weighs on gold through its impact on the currency markets.
Gold prices remain vulnerable to weakness in the euro, and consequent gains in the dollar, which makes the metal more expensive for other currency holders. They gave up early gains as the euro dipped 0.2 percent against the US unit.
Deep-seated concerns about financial turmoil in Greece and Spain are keeping the single currency under pressure.
EURO ZONE TALKS
A rapid deterioration in the crisis over the past few weeks and increasing uncertainty whether Greece will stay in the euro zone prompted talk that French President Francois Hollande and other euro zone leaders will promote the idea of mutualised European debt at an informal summit in Brussels on Wednesday,
The proposal is likely to meet with entrenched opposition from European paymaster Germany.
"(Gold's performance) really all depends on whether (its) new found rally can stand up to what I think will be weakness in the euro over the coming days," Marex Spectron said in a note.
"Watch the correlation carefully, as if it seems that gold is functioning by itself, then on the basis that there is not likely to be much good news out of Europe, we could see higher numbers," it said. "However if gold falls back into its bad old ways and follows the euro, then this rally may be short lived."
Data released in the United States on Friday showed hedge funds and other money managers liquidated more than $2 billion in US gold futures over a week, before a forceful rebound in the metal potentially tripped up some of them.
On the other side of the market, news from the jewellery sector was uninspiring, with officials saying on Saturday that Italy, Europe's biggest jewellery exporter, is set to see a fall in domestic sales in 2012 as consumers tighten belts while the government pushes ahead with austerity measures.
Among other precious metals, silver was down 1.2 percent at $28.26 an ounce, while spot platinum was up 0.5 percent at $1,457.49 an ounce and spot palladium was up 2.1 percent at $610.97 an ounce.
Both platinum group metals posted modest losses last week as jewellers, miners, refiners and recyclers met in London for Platinum Week.
"London Platinum Week rammed home the need for some form of short- to medium-term production restraint in the face of weak PGM prices," RBS said in a note on Monday.
"None of the producers we met up with had any doubt about the positive platinum and palladium demand picture in the years ahead. Of more concern was what to do short term to put a bridge across the current, mainly externally driven price woes.
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