* Europe elections cast doubt on battle against debt crisis
* Euro slides to three-month low, hurting gold
* Some physical demand picks up in Europe, United States
(Updates throughout, changes dateline, pvs SINGAPORE)
By Jan Harvey
LONDON, May 7 Gold eased on Monday after
elections in France and Greece at the weekend reflected strong
anti-austerity feeling and raised concerns over the euro zone's
ability to battle its debt crisis, knocking the euro to a
three-month low versus the dollar.
Greek voters in particular rejected the austerity-for-aid
policies that have shielded the country from bankruptcy and a
euro exit, dealing a serious blow to the euro zone's fragile
political consensus on debt.
Assets seen as higher risk, like stocks and commodities,
came under pressure along with the euro. European stocks slumped
to 4-1/2 month lows, Brent crude oil fell to its lowest since
January, and safe-haven German Bund futures hit record highs.
Spot gold was down 0.1 percent at $1,639.60 an ounce
at 0942 GMT, having earlier dropped as low as $1,634.16.
"Gold opens the week lower with investors in risk-off mode
after this weekend's election. Stocks are weaker, the euro is
losing ground, and since gold is currently considered as a
riskier asset, it is also losing ground," Alexander Zumpfe, a
trader at precious metals house Heraeus, said.
Nonetheless, he added that some buying trickling through was
arresting further losses in gold. "We already saw some physical
buyers coming back this morning," he said.
Concerns over the outlook for the euro zone were a key
factor driving gold prices to record highs last year, but as the
dollar, Bunds and U.S. treasuries took over as investors' havens
of choice, it has come under pressure along with the euro.
But if the situation in the euro zone worsens significantly,
analysts say it could once again become a positive driver of
gold, as Europeans scramble to diversify away from the euro.
Greek voters enraged by economic hardship caused by the
terms of an international bailout turned on ruling parties in
their election, putting the country's future in the euro zone at
risk and threatening to revive Europe's debt crisis.
In France, Socialist Francois Hollande won Sunday's
presidential polls as expected. Markets are as yet uncertain
about his agenda, and anxious to see how hard he will push to
dilute a German-led European austerity drive.
"With growing influence of anti-austerity political blocs,
tensions among the euro zone will likely be intensified and a
wave of renegotiations for bail-out programmes may be sparked,"
Credit Agricole said in a note on Monday.
PHYSICAL DEMAND FAILS TO SHINE
Physical gold demand in Asian markets was lacklustre, with
buyers returning to the sidelines after picking up bargains when
prices dropped below $1,630 last week, dealers said.
However, gold imports to India, the world's biggest buyer of
bullion, could rise on pent-up demand from jewellers after the
federal government decided to scrap an excise duty on jewellery
it imposed in March, Prithviraj Kothari, president of the Bombay
Bullion Association, told Reuters on Monday.
The federal government will withdraw the excise duty on all
jewellery effective March 17 -- the date it was introduced --
Finance Minister Pranab Mukherjee told parliament.
Buying picked up slightly in the United States. Data from
the U.S. Mint showed sales of American Eagle gold coins have
already reached 20,000 ounces so far this month, the same amount
in volume terms as was sold in the whole of April.
From a technical perspective, gold remains in limbo,
analysts who study past price moves to determine the future
direction of trade said on Monday.
"Gold remains locked in a range and our view is unchanged.
We would prefer to fade weakness against the 1,600 area where we
expect buying to manifest," Barclays Capital said in a report.
"A move above the 1,690 area would confirm our bullish view
toward the range highs near 1,800," it added. "Seasonality leads
us to expect a mid-year sideways chop before we become more
bullish in the second half of the year."
Money managers, including hedge funds and other large
speculators, increased their net length in gold in the week
ended May 1 by 8,462 contracts to 116,061 contracts, the highest
level since the week of April 8, data from the Commodity Futures
Trading Commission showed on Friday.
But they reduced their silver length by 191 contracts to
10,565 contracts, the lowest level since early January.
Spot silver was down 0.3 percent at $30.25 an ounce,
while spot platinum was up 0.2 percent at $1,523.49 an
ounce and spot palladium was up 0.5 percent at $649.97 an
(Reporting by Jan Harvey; Editing by Alison Birrane)