NEW YORK (Reuters) - Gold fell 1 percent in active trade on Tuesday, as the euro’s slide on worries over Spain’s debt prompted investors to sell the precious metal along with other dollar-sensitive commodities.
Trading volume in U.S. futures more than doubled its 30-day average, boosted by active position rolling from the June to August contracts before June delivery period starts as U.S. traders returned after Monday’s Memorial Day holiday.
Bullion rose in early trade and then erased those gains as the euro tumbled below $1.25 to hit its lowest in nearly two years after credit agency Egan-Jones downgraded Spain’s sovereign credit rating. The metal also underperformed crude oil and other industrial metals such as copper.
Gold was headed for a monthly decline of nearly 7 percent in May, which would be its fourth straight monthly decline, the longest stretch since January 2000. It would also be the steepest monthly slide of 2012.
Technical selling below a key support also accelerated losses. Bullion’s investment appeal based on economic uncertainty has been more than offset by the strength in the U.S. dollar and Treasuries, also viewed as safe havens by investors.
“That trade which is directly tied to the euro weakness, and has made gold so significantly volatile, is going to have a short-term negative impact on gold,” said Jeffrey Sica, chief investment officer of SICA Wealth Management LLC.
“People are trading out of gold based on the euro weakness, but they will buy back into gold based on fear,” said Sica, who manages $1 billion in client assets.
Spot gold was down 1.4 percent at $1,551.50 an ounce by 2:42 p.m. EDT (1842 GMT).
U.S. gold futures for June delivery settled down $20.20 at $1,548.70. Volume topped 450,000 lots, preliminary Reuters data showed, near a 2012 high of 470,000 contracts traded on January 26.
David Meger, director of metals trading at futures brokerage Vision Financial Markets, said that Tuesday’s volume was inflated by rollovers ahead of the June contract’s first-notice day on Thursday.
A large number of stop-loss orders were triggered once prices fell below key support at $1,570 an ounce, Meger said.
Gold rose to $1,582.40 on early strength in U.S. equities markets, which focused more on data showing home prices edging higher than a reported four-month low in consumer confidence. Market talk about new stimulus from China also powered the metal’s early gains.
Investors are worried about Spain’s escalating borrowing costs and weakening banking sector and Greece’s election next month.
Mike Zarembski, senior commodity analyst at online brokerage optionsXpress Inc, said gold might rally if Greece leaves the euro zone, as other “safe” currencies such as the U.S. dollar are plagued with their own problems.
Attention is already shifting towards U.S. employment data due Friday. The non-farm payrolls report is expected to show the world’s largest economy added 150,000 new jobs in May.
Among other precious metals, silver fell 2.1 percent to $27.80 an ounce. Spot platinum was down 0.7 percent at $1,421.99 an ounce, while spot palladium inched up 15 cents at $601.97 an ounce.
Additional reporting by Jan Harvey and Amanda Cooper in London; Editing by David Gregorio and Alden Bentley