Gold dips with Spain, Greece in focus; Italy concerns grow

Investing.com - Gold futures were lower during European morning trade on Tuesday, as investor optimism over the Spanish bank bailout waned and as worries grew over this weekend's elections in Greece.

Growing concerns that the region’s debt crisis will spill over to Italy further weighed on market sentiment.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at USD1,592.45 a troy ounce during early European trade, easing down 0.25%.      

It earlier fell by as much as 0.6% to trade at a session low of USD1,589.55 a troy ounce. Prices touched a one-month high of USD1,642.15 on June 6.

Gold futures were likely to find support at USD1,546.35 a troy ounce, the low from June 1 and resistance at USD1,642.15, the high from June 6.

Market sentiment was lifted Monday after Spain’s Finance Minister Luis de Guindos said the European Union agreed to grant Madrid a loan of up to EUR100 billion, which the government will use to recapitalize the country’s ailing banking sector.

But risk assets came under renewed pressure as the initial optimism which greeted news that Spain had secured a bailout for its banks faded and investors began to focus on the details of the rescue package.  

The exact amount Madrid is to receive will only be decided later this month, after the results of independent banking audits are published. In addition, questions remained over the source of the funds and whether the bailout repayments would add to the country’s already high borrowing costs.

Adding to Spain’s troubles, ratings agency Fitch cut the long-term credit ratings for Spanish banks Banco Santander and Banco Bilbao Vizcaya Argentaria to BBB-plus from A. The rating announcement followed the three-notch cut to the country's sovereign rating last week by Fitch last week.

Spain is the fourth euro-zone nation to seek a rescue, after Greece, Portugal and Ireland. A financial crisis has gripped the country since 2008, when a real estate bust caused big losses for many banks.

Concerns about Spain’s banks have grown since Bankia, the country’s fourth-largest lender, said last month it needed EUR19 billion in state aid to shore itself up against bad loans.

Appetite for riskier assets was further weighed amid uncertainty over the outcome of a Greek general election on June 17, which could determine the course of the country’s future in the euro zone, as well as concerns over Italy’s fiscal health.

Meanwhile, Cyprus said Monday it urgently needed European financial aid to shore up its banking system, a step that would make it the fifth euro zone economy to seek help.

The Wall Street Journal reported that the size of any bailout for Cyprus would amount to no more than EUR3 to EUR4 billion.

Although gold’s appeal as a safe haven is boosted during times of economic uncertainty, the euro zone’s debt crisis has done little to bolster appetite for the precious metal in recent months.

A weakening euro and stronger dollar have weighed on gold instead, as the precious metal has been moving in tandem with riskier assets since hitting a record high of USD1,920 last September.

Gold has lost some of its safe haven appeal to the dollar, U.S. Treasuries and German Bunds, partly as a strengthening dollar makes the metal less attractive to buyers holding other currencies.

Elsewhere on the Comex, silver for July delivery shed 0.55% to trade at USD28.45 a troy ounce, while copper for July delivery declined 0.5% to trade at USD3.326 a pound.