NEW YORK/LONDON (Reuters) - Gold fell on Monday as the dollar strengthened, tracking riskier assets as investors once again focused on the huge euro zone sovereign debt problems following initial optimism surrounding new governments in Italy and Greece.
Bullion was pressured as the euro slumped against the dollar after German Chancellor Angela Merkel said that Europe could be living through its toughest hour since World War Two, and as Italy paid a euro-lifetime high price to sell five-year bonds to wary investors.
The yellow metal — a traditional safe haven which has recently taken to tracking the equity markets - was still over 1 percent higher in the last two sessions on some hopes about Europe’s debt crisis. Bullion prices are also underpinned by a bullish forecast by Goldman Sachs.
“The same reason that is driving the dollar’s strength should also be driving gold’s strength,” said Carlos Perez-Santalla, precious metals broker of PVM Futures.
“In time, when the cracks in the European facade start to show, gold will climb,” he said.
Spot gold was down 0.4 percent to $1,780.59 an ounce by 12:33 p.m. EDT (1733 GMT). Gold priced in euros rose for a second day, breaking above 1,300 euros an ounce to within sight of last week’s two-month highs.
The inverse correlation-log between gold and the U.S. dollar has increased to a negative 0.5, its tightest in more than six months, as jittery investors sought safety in the greenback and U.S. Treasury bonds rather than in gold.
U.S. gold futures for December delivery were down $6.10 to $1,782 an ounce.
On Friday, gold rose 1.5 percent, tracking a Wall Street rally. Last week, bullion notched its third consecutive weekly gain, its longest winning streak since August.
U.S. equities fell 1 percent on euro zone worries, and commodities also fell broadly led by decline in Brent crude futures.
“It’s not obvious to us that gold is behaving as a safe-haven store of value at all at the moment, it does appear to be behaving like a commodity that benefits from liquidity and doesn’t necessarily benefit from any potential catastrophe in Europe,” Nic Brown, head of commodity strategy at Natixis said.
U.S. investment bank Goldman Sachs (GS.N) said it was maintaining a long position in gold based on its expectation for U.S. economic slowdown next year and lower key interest rates there than it had originally forecast.
Reflecting bullion’s safe-haven demand amid lingering euro zone jitters, global holdings of gold in ETFs increased by nearly 0.9 million ounces last week to 68.9 million ounces. November is shaping up to show the largest monthly inflow since July, with a net inflow of nearly 1 million ounces so far this month. <GOL/ETF>
Among other precious metals, silver fell 1.3 percent to $34.15 an ounce. Platinum climbed 0.1 percent to $1,635.99 an ounce, while palladium rose 0.6 percent to $659.13 an ounce.
Additional reporting by Rujun Shen in Singapore; Editing by Marguerita Choy