Investors focused on scope of task faced by new governments in Italy, Greece to rein in debt crisis
Spot gold prices inched down on Tuesday, as investors unnerved by an Italian bond auction focused on the scope of the task faced by new governments in Italy and Greece in keeping the region's sovereign debt crisis under control.
Though gold is supported by its safe-haven allure, it is prone to spillover from the heavy sell-off in the wider financial market, where sentiment remains fickle over Europe's painful journey en route to solving its debt crisis.
Asian shares fell as a rise in euro zone bond yields reflected lingering doubts about the ability of politicians in Italy and Greece to push through painful reforms to resolve their debt crises and win market confidence.
"There is a much greater likelihood of its ending badly," said a Singapore-based trader.
"Whether it means the euro would dissolve is a different question, but the government bond market seems to be deteriorating. A lot of people in the market still have the idea that gold would be a reasonable thing to hold while the situation plays out."
Spot gold edged down 0.2 percent to $1,776.44 an ounce by 0307 GMT, extending losses from the previous session.
US gold was little changed at $1,778.10.
Technical analysis suggested that spot gold could fall to $1,735.69 an ounce during the day, said Reuters market analyst Wang Tao.
Spot gold has attempted to break above $1,800 over the past week, and the failure has contributed to thin trading volumes on the physical market of Asia.
"At this price level there is not much interest around, since it looks like we can't break above $1,800," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong.
"If we see prices drop below $1,750, some buyers may enter the market."
Gold bar premiums in Hong Kong remained in a range of $1 to $1.50 an ounce above spot prices, Leung added.
Money managers, including hedge funds and other large speculators, increased their bullish bets in gold futures and options during the week of Nov 8, as the price of bullion rallied to a 7-week high above $1,800 an ounce, data showed.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported the first dip in its holdings in more than two weeks on Monday - a fall of 0.388 tonnes from the previous session to 1,268.278 tonnes.