* Gold falls toward 2012 lows on doubts over Greek bailout
* Option volatility spikes on heavy puts buying
* Bullion breaks key chart support, outlook bleak
* Coming up: U.S. wholesale inventory data Wednesday
(Recasts, adds details, graphics link)
By Frank Tang
NEW YORK, May 8 Gold fell around 2 percent in
heavy trading on Tuesday, briefly breaking below $1,600 an
ounce as worries that the euro zone debt crisis could worsen
triggered a technical selloff.
Gold retraced some losses as other commodities and Wall
Street also recovered. Still, the day's tumble cut gold's gain
so far in 2012 to less than 3 percent.
Option volatility spiked as investors bought put options to
protect against further downside risk in bullion prices. The
precious metal breached a series of technical support levels,
suggesting more weakness to come.
Bullion this year has tended to trade in tandem with riskier
assets such as stocks and oil, and has not staged many
safe-haven rallies this year during times of economic
Analysts said political uncertainty in Greece and a change
of leadership in France had investors doubting whether Europe
would come through with the billions of euros needed to bail out
its troubled economies.
"Absent new monetary stimulus, gold doesn't make sense. When
people are fearful of the fiat currencies eroding their wealth,
that's when gold catches its bid," said Jeffrey Sherman,
commodities portfolio manager of the $33 billion asset manager
Spot gold dropped 1.9 percent on the day to $1,607.70
an ounce by 3:16 p.m. EDT (1916 GMT), its largest daily decline
in a month. It hit a session low of $1,594.94 an ounce, its
cheapest price since Jan. 4.
Gold's has declined $180 from its 2012 high of $1,790 on
Feb. 29 after Fed Chairman Ben Bernanke did not hint at a third
round of government bond purchases, or quantitative easing,
which has underpinned the metal. A strong run of U.S. economic
data has further reduced hopes for U.S. monetary easing.
U.S. gold futures for June delivery settled down
$34.60 at $1,604.50 an ounce.
Trading volume was on track for its strongest showing in
more than a month and about 40 percent above its 30-day average,
preliminary Reuters data showed.
U.S. Treasuries rallied with the dollar, putting pressure on
other commodities such as crude oil and copper.
Losses on Wall Street also pressured precious metals.
"With stocks slumping and with treasuries rallying and risks
generally rising ... investors are withdrawing from the gold
market, perhaps as margin calls are made, forcing investors to
liquidate precisely when they don't want to," Andrew Wilkinson,
chief economic strategist at Miller Tabak & Co said in a note.
The CBOE Gold ETF Volatility Index, often referred to
as the "Gold VIX" -- based on options of the SPDR Gold Trust
-- rallied 11 percent to a reading of 18.6.
Bill Luby, a private investor and author of a blog called
"VIX and More," said there appeared to be lots of put buying in
the GLD which has inflated the Gold VIX, which was hovering near
a historically low level despite Tuesday's spike.
TECHNICAL OUTLOOK BLEAK
Analysts said gold could fall further if it fails to hold
above $1,600 an ounce as there is little underpinning from
technical charts under that level.
"The fact that support has been broken on a daily, weekly
and monthly time frame suggest that this selloff could get
worse," said Adam Sarhan, CEO of investment research and
consultant Sarhan Capital.
Sarhan said gold was already testing the lows of 2012 when
Tuesday's heavy losses sent the metal below heavy daily and
weekly support between $1,620 and $1,630 an ounce as well as its
18-month upward trendline on monthly charts.
Silver was down 1.8 percent on the day at $29.47 an
ounce. Platinum fell 1.1 percent on the day to $1,505.74
an ounce and palladium slid 3.1 percent to $621.97 an
3:16 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold JUN 1604.50 -34.60 -2.1 1595.50 1639.50 198,082
US Silver MAY 29.414 -0.658 -2.2 29.160 29.910 101
US Plat JUL 1508.30 -21.80 -1.4 1501.30 1534.60 6,298
US Pall JUN 622.85 -24.95 -3.9 620.40 651.60 5,076
Gold 1607.70 -30.40 -1.9 1595.95 1638.91
Silver 29.470 -0.540 -1.8 29.160 30.100
Platinum 1505.74 -16.06 -1.1 1504.48 1529.74
Palladium 621.97 -19.91 -3.1 623.18 650.00
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 220,397 162,431 192,407 18.64 1.63
US Silver 44,819 54,646 61,829 27.29 1.48
US Platinum 6,506 7,357 8,243 19 0.00
US Palladium 5,284 2,902 4,674
(Additional reporting by Doris Frankel in Chicago and Amanda
Cooper in London; Editing by David Gregorio and Jim Marshall)