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NEW YORK/LONDON (Reuters) - Gold slipped to a fresh 4-1/2 month low on Tuesday as the euro continued to lose ground to the dollar after Greece's failure to form a coalition government heightened concerns over Europe's financial crisis and led investors to spurn risky assets.
After six rounds of fruitless wrangling, Greece abandoned efforts to form a government and called a new election that some investors fear may hand victory to the leftists, undo the country's financial bailout package, and push it closer to bankruptcy and out of the euro zone.
In response, gold slipped with the euro, which tumbled to new four-month lows in late New York trade. The euro had fallen in five of the last six sessions on worries over Greece's June election prospects, dragging gold down with it. <USD/>
Spot gold was off 0.88 percent at $1,542.60 an ounce by 3:30 EDT (1930 GMT). U.S. gold futures for June delivery were down $18.60 at $1,542.50 an ounce.
Gold hit its lowest level since December 29 at $1,541.10 an ounce and is down nearly 7 percent so far in May, on track for its worst monthly performance since December, as talk that Greece could exit the euro zone has spooked investors.
"The euro has done very poorly against the dollar because of everything going on predominantly in Greece. Gold has gotten sold off quite hard in the last couple of sessions. I think people are unwinding and getting into cash and a little bit of Treasuries, German bunds, and that's about it," said Fred Schoenstein, metals trader at Heraeus in New York.
With the precious metal declining to its lowest point since late December, consumers in top purchasing nations such as India have come into the market, which analysts said could protect the bullion price from a more protracted decline.
Some participants view current levels or slightly below as buying opportunities for the precious metal, which they say will at some point turn up again.
"Gold's negative on the year, but in the long term, will it go up? Probably. But, at this point it's just trend following," said Schoenstein.
Analysts said any bounce in the euro could run out of steam above $1.2880-$1.2900, with peripheral bond yields still at elevated levels, highlighting the risk of contagion from the Greek deadlock spreading to other euro zone countries.
"(Gold's) safe haven status has been tarnished," Richcomm Global Services senior analyst Pradeep Unni said. "It will wobble on the euro's weakness, but in a very short term, bargain hunting and pent-up demand will emerge taking it higher."
Despite gold's tendency to decline in line with the euro, physical demand among major Asian consumers also worked in gold's favor, traders reported, with buyers stepping in to take advantage of its slide below $1,550 an ounce.
"Jewelers have been buying a lot. At the moment supply is a bit tight for immediate delivery," said a physical dealer in Singapore. "Refiners can't deliver immediate gold because there's a sudden surge in demand. We're seeing demand from India, Thailand and Indonesia."
Nonetheless, dealers in major consumer India say more losses are expected in the precious metal as the rupee strengthens, making dollar-priced bullion more expensive for local buyers.
Holdings of gold-backed exchange-traded funds monitored by Reuters, which issue securities backed by the physical metal, fell by nearly 100,000 ounces on Monday, data from the funds showed.
Among other precious metals, silver dropped to $27.67 an ounce from $28.12 per ounce on Monday, in line with gold's losses. It fell earlier to $27.56, its lowest since December 30.
Platinum group metals outperformed as the annual Platinum Group meeting of miners, refiners, traders, recyclers and consumers in London continued into a second day.
Platinum was off 0.4 percent at $1,428.99 an ounce, while palladium rose 0.6 percent to $590.53 an ounce.
A report by Johnson Matthey on Monday showed both platinum and palladium markets in surplus last year. However, palladium is expected to swing back into deficit next year, on selling of physical metal by investors and as sales from Russian state stocks dry up.
Additional reporting by Amanda Cooper in London and Lewa Pardomuan in Singapore; Editing by Jason Neely, Alison Birrane and Jim Marshall