Gold falls on euro but technical outlook encouraging

NEW YORK/LONDON (Reuters) - Gold fell on Monday as a sharp drop in the euro and losses in commodities triggered profit-taking after the metal's recent rally, but a positive technical outlook could underpin bullion in the near term.

The metal was dragged lower by a broad decline in equities, crude oil and grain prices after Greece's efforts to reach a debt restructuring with creditors stalled and European leaders tried to find ways to reconcile economic austerity with growth.

Gold notched a 5 percent gain last week for its fourth consecutive weekly gain after the U.S. Federal Reserve said it was unlikely to raise interest rates from near zero until at least late 2014.

The market's technical picture improved after gold broke above key resistance at its 200-day and 100-day moving averages, analysts said.

"Gold is forming a bullish double-bottom pattern as it tries to recover from its severe fourth-quarter sell-off," said Adam Sarhan, chief executive of Sarhan Capital.

"Until gold trades above $1,804 where a new definitive technical buy signal will be triggered, the bears remain in control of this market," he said.

Spot gold was down 0.4 percent at $1,730.36 an ounce by 2:47 p.m. EST (1947 GMT), off an intraday low of $1,716.19. It was on track gain 10 percent in January, which would be its strongest monthly rise since August's 12 percent rally.

U.S. gold futures for February delivery settled down $1.20 at $1,731 an ounce. Trading volume was in line with its 30-day average.

Last week, gold staged its largest weekly rally in three months on the Fed's interest rate comment and data which showed the U.S. economy grew more slowly than expected in the final quarter of 2011.

Silver fell 1.4 percent to $33.45 an ounce.

Less than a year after silver's breathtaking collapse from record highs, investors are again snapping up coins at an unprecedented pace which suggests the white metal could leave gold in the dust.

GOLD-RISK CORRELATION WEAKENS

Gold's correlation with riskier assets has been erratic in January, as its positive link with equities has fallen to the weakest in the last week. This is a sharp contrast to the last two months of 2011, when gold had moved in tandem with the euro.

Analysts said they expected gold to recover from Monday's weakness, especially given the impasse over the restructuring of Greece's debt burden.

"Until we get some kind of resolution in these discussions on Greek debt and what the bondholders are going to accept as a haircut, then that is still going to be a live issue for the market," Credit Suisse analyst Tom Kendall said.

European leaders struggled to reconcile austerity with growth on Monday at a summit that approved a permanent rescue fund for the euro zone and was trying to put finishing touches to a pact for stricter budget discipline.

Platinum was down 0.4 percent on the day at $1,609.24

an ounce and has risen by nearly 15 percent in January, the biggest rise since the 25 percent rally of February 2008.

Palladium edged up 15 cents to $685.75 an ounce.

(Additional reporting by Lewa Pardomuan in Singapore; editing by Jim Marshall)