Gold reversed course on Tuesday to fall after a rally in the dollar exacerbated a sell-off in the already-fragile commodity complex and offset the positive impact on bullion of the concern over the euro zone debt crisis.
Spot gold was down 0.8 percent at $1,477.19 an ounce at 1332 GMT, down from a session high of $1,497.60.
U.S. gold futures for June delivery fell $13.0 an ounce to $1,477.60.
The dollar rose to session highs against the euro, drawing strength from a decline in equities and commodities, which in turn fed into more weakness in raw materials prices, which tend to suffer from a firmer U.S. currency.
Gold fell in tandem with silver, crude oil futures and copper.
"We have this very high correlation between oil and the dollar and this bounce we had in the dollar was enough to tip them both, so I think it's purely technical," said Saxo Bank senior manager Ole Hansen.
"We are just faced with a period where we just have to get through this unwind of the short dollar/long commodities position, which has been directing the market for the last six months, and once we get a feeling that that is over, the market will come back, pick up the pieces and look for value."
Implied volatility in gold has eased off since hitting a 5-1/2 month peak in early May but still remains close to its highest levels this year, meaning the price is tending to react more violently than usual to external forces.
The metal's rally to record highs above $1,575 an ounce earlier this month was helped by dollar weakness. However, it has since retreated as the U.S. currency bounced from lows.
The metal has also come under pressure from signs investor confidence in its ability to rise significantly further may have waned as prices rose to previously unseen highs this year.
Filings with the U.S. financial regulator showed on Monday that billionaire financier George Soros dumped almost his entire $800 million stake in bullion in the first quarter. Famed gold bull John Paulson held his ground, but Soros was joined in the retreat by several other big names.
ETFs UNDER PRESSURE
Gold holdings in exchange-traded funds monitored by Reuters fell for a tenth consecutive trading day on Monday, bringing the net decline over this period to over 1.14 million ounces. They are down 1.62 percent year to date.
In the last month in gold, the only outflows have come from the largest fund, the SPDR Gold Trust, which reported a 1.25-million ounce outflow from mid-April to May 16.
The ZKB Physical Gold fund saw the largest absolute rise in its holdings in that period, up 77,400 ounces, while the iShares Gold Trust was up around 74,400 ounces.
"It is worth noting... that SPDR seems to be falling out of favour with investors (maybe because it is more visible than other ETFs), and that other ETFs have been taking up the slack," said Standard Chartered analyst Daniel Smith.
"SPDR was down 5 percent in the first quarter while the total physical holding for all major gold ETFs was down by just 3 percent. So far in Q2, SPDR is down 1.6 percent, while the total physical holding for all major ETFs was up by 0.6 percent."
Holdings of the world's largest silver-backed exchange-traded fund, New York's iShares Silver Trust, fell another 51 tonnes on Monday. The fund has seen outflows of 570 tonnes since its correction from record highs began in earnest in late April.
Investors are likely to be wary of silver after the metal plummeted in early May after climbing sharply earlier in the year, analysts said.
Silver fell 0.7 percent to $33.31 an ounce. Among other precious metals, platinum was up 0.2 percent at $1,753.74 an ounce, while palladium was flat at $708.22.
Platinum Week in London entered its second day, after the launch of refiner Johnson Matthey's keenly awaited report on the platinum group metals' market fundamentals on Monday.
"Overall JM were positive in their 2011 crystal ball gazing, but this also came with a dose of cautiousness," said UBS in a note. "They estimate that the 2010 status quo - of a sizeable deficit for palladium and a platinum market close to balanced - will be retained."