Gold steadied on Monday as investors still wary after last week's price drop sold the metal above $1,600 an ounce, erasing gains it made on the back of a surge in the euro after European ministers agreed a $125 billion deal to aid Spanish banks.
Other precious metals outperformed, meanwhile, on hopes a solution to the euro zone debt crisis may emerge. Platinum and palladium were the biggest risers, while silver prices were also up more than 1 percent.
Spot gold was little changed at $1,592.80 an ounce at 13:24 SA time, having earlier touched a high of $1,607.95. US gold futures for August delivery were up $1.90 an ounce at $1,593.30.
“A bailout for the European banks is a positive for the euro and in a way a positive for gold, but it may take some of the risk attraction of gold away, so there is some negativity there as well,” Mitsui Precious Metals analyst David Jollie said.
“For the other metals, it may be a bit more positive, in the sense that the euro crisis seems a little more distant,” he added. “But at the moment no-one is quite sure whether this is just pushing things down the road, or whether it is the start of a solution to the euro problem. That is the key question.”
Subsiding risk aversion lifted European equities, but Spanish government bond yields turned flat on the day, reversing an earlier fall, as relief after the country secured a banking bailout proved to be short-lived.
Other commodities climbed, with oil prices up around 70 cents a barrel as the news on Spanish banks allayed fears demand would falter, and base metals like copper and aluminium rose.
The euro rose after Spain secured aid for its banks, allaying some of the concerns about the country's debt problems, but the currency's gains were seen limited as investors were cautious ahead of elections in Greece at the weekend.
Any fresh strength in the dollar could pressure gold.
“While commentators spend much time talking about how gold is being influenced by the risk to the global financial/banking system from Euro troubles, gold seems to be primarily tracking one trend, namely the trend in the US dollar,” Citi said in a note.
“If an event in Europe causes the US dollar to weaken, gold is likely to rise. If it causes the US dollar to strengthen, gold will likely fall.”
Data from the Commodity Futures Trading Commission showed money managers raised their net length in gold by nearly 30 percent to 98,426 lots in the week to June 5, after weak US jobs data fuelled talk of a new round of US monetary stimulus.
Speculation of a third round of quantitative easing, which could potentially undermine the dollar and boost the appeal of gold as an alternative to volatile currency markets, sparked gold's biggest one-day rise in more than three years.
However, that rally quickly lost steam after Bernanke gave no further hint stimulus was on the cards in a speech last week.
“Chairman Bernanke did not give any direct or indirect signals that the Federal Open Market Committee would ease further this month, but our economists note he also did not say it would not ease,” Barclays Capital said in a note.
“Their impression of the testimony was that he has not made up his mind on this issue yet. And they continue to put the probability of a Fed easing at this month's meeting at 50 percent; the form such easing would take is also uncertain.”
Among other precious metals, silver was up 0.5 percent at $28.62 an ounce, tracking gains in the broader commodities market.
Spot platinum was up 1.1 percent at $1,437.83 an ounce, while spot palladium was up 1.3 percent at $617.25 an ounce.
The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, retreated from near five-month highs as platinum outperformed, while the spread narrowed to $150 an ounce from nearly $200 an ounce last week.
Aquarius Platinum said it would suspend operations at its Marikana facility in South Africa, citing low platinum prices, and said trading conditions in the industry were expected to remain difficult in the short to medium term.
Platinum miners in South Africa, the source of nearly four out of five ounces of annual supply of the metal, are suffering from rising costs, lower metal prices, and a tougher operating climate as regulation increases and labour pressures mount.
Analysts said more production cuts would be needed to lock in sustainably higher prices. - Reuters