SINGAPORE: Gold fell for the first time in seven sessions on Monday as the risk of a Greek exit from the euro zone subsided after parties backing a bailout for the country won an election, denting the metal's safe-haven appeal.
The initial vote results drew expressions of relief from the Group of Seven industrialised economies, who said it was in "all our interests" for Greece to stay in the euro while respecting its international bailout commitments.
Increased appetite for riskier assets pushed money out of gold, which fell more than 1 percent to a low of $1,606.49 an ounce. It later recovered to $1,621.60 an ounce by 0629 GMT, still down $6.19. Bullion is more than $200 below a record of around $1,920 struck in September last year.
But losses are expected to be checked, as the optimism stemming from the Greek poll outcome and the rally in risky assets is likely to be short-lived given high borrowing costs in Spain and Italy and the continued threat to the global economy from the region's debt crisis.
"I think we still have to see whether Greece can form a government," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that investors would now turn their attention to concerns over a faltering US economy.
"Sentiment is a bit mixed. Everybody is taking profits for the time being. If (FOMC) launches the QE3, of course the market will be moving up."
Investors are looking for hints for another round of quantitative easing (QE) in the United States when the Federal Open Market Committee releases a policy statement at the end of its two-day meeting on Wednesday.
Previous rounds of asset purchases by the Fed to drive down interest rates and stimulate the economy had weakened the US dollar and boosted global stock markets, while polishing up gold's appeal as a hedge against inflation.
The euro briefly hit a one-month high against the US dollar after the Greek poll results, but light volumes indicated dealers were still cautious on how the result would pan out.
Gold, which often tracks movements in the euro, ignored gains in the single currency, but data from the Commodity Futures Trading Commission (CFTC) indicated investors were still generally bullish on gold.
Money managers raised their net length in gold by 1,258 lots, or around 1 percent, to 99,684 lots in the week to June 12, as signs of a slowing in the US economic recovery and the euro zone debt crisis fuelled speculation of monetary stimulus from central banks around the world.
US gold futures for August delivery dropped $5.10 an ounce to $1,623.00 an ounce.
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