Gold prices fell more than 1 percent on Monday as concerns over Spain's financial health pushed the euro to two-year lows against the dollar, pressured stock markets and drove Spanish borrowing costs to euro-era highs.
Investors grew more concerned on Monday that Spain may need a full bailout after a second region, Murcia, indicated it would need government help, likely following Valencia in tapping a government programme to shore up its finances.
Gold recovered from lows with the euro after the International Monetary Fund said it will start discussions with the Greek authorities on July 24 on how to bring Greece's economic programme back on track, but remains under heavy pressure from losses in the euro and stock markets.
Spot gold was down 0.9 percent to $1,570.30 an ounce at 1347 GMT. Expectations for more euro weakness, and consequent dollar strength, is set to keep gold on the back foot.
The euro slid to its weakest since June 2010 against the dollar and a near 12-year trough against the yen on concerns Spain will have to seek a full sovereign bailout, while European shares were down 2 percent after Spain's financial outlook took a turn for the worse.
"The dollar will stay strong with all these fears and the spike in bond yields we're seeing, certainly for the time being," Societe Generale analyst Robin Bhar said. "So gold will continue to underperform and we should see another test of the lows again over the slow summer period."
"I think gold will stay weak until the usual September to December period, when it does tend to do better," he added.
Other commodities also weakened, with crude oil falling as much as $4 a barrel, while copper slid to a three-week low.
Spanish media reported that up to six regions may seek aid from the central government after Valencia asked for funds on Friday, sending yields on all Spanish government bonds sharply higher and 10-year debt to a euro-era high of over 7.5 percent.
Major ETF sees outflows
From a technical perspective, gold is set to find support around $1,559/1,560, according to analysts who study past price patterns to determine the future direction of trade. Prices have held within a $1,525-1,675 range for more than three months.
Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust dropped for a fourth consecutive week after a 2.4 tonne outflow on Friday, down 15 tonnes, their biggest weekly decline since late December.
Gold demand from major consumers India and China also remained weak, analysts said.
"Our sales to India do not indicate any improvement as yet and neither does combined gold volumes on the Shanghai Gold Exchange, which have been 30 percent below average this month," UBS said in a note.
"Evidence of a significant response from physical buyers is needed first, before the investment community can be expected to follow suit."
U.S. gold futures for August delivery were down $13.60 an ounce at $1,569.20.
Silver was down 1.9 percent at $26.77 an ounce, while platinum was down 1.5 percent at $1,389.49 an ounce and palladium was down 1.4 percent at $563.25 an ounce.
Trade data from China, a major market for industrial precious metals, showed a 23.6 percent year-on-year drop in silver imports in June, a 29.6 fall in palladium imports, and a 31.8 percent rise in platinum inflows. In the year to date, imports of all three metals are down.
Concerns over supply did little to support platinum prices. The world's biggest miner of the metal, Anglo American Platinum
Acting chief executive Bongani Nqwababa told a results presentation he would not "tolerate unprofitable ounces", a signal the group could move to close loss-making shafts.
