Gold fell on Tuesday under the weight of a weaker euro, while platinum shrugged off news of fresh disruption to production at South Africa's largest miner of the metal.
The euro remained clear of last week's four-month lows but was stuck in negative territory against the dollar ahead of an informal meeting later this week of European leaders aimed at discussing ways of stemming the debt crisis.
Across the broader markets, European blue-chip shares clung on to their gains, lifted by investors buying back some of the more heavily-sold names, while modest optimism that the summit could offer some interim solution to the crisis put pressure on safe-haven German Bunds.
Spot gold was down 0.8 percent at $1,580.50 an ounce by 14:05 SA time. The price is still showing its largest week-on-week gain since mid-April, having risen by 2.5 percent.
“Having failed at $1,600 yesterday, the market has looked for the direction of least resistance and that is currently down,” Ole Hansen, a senior manager at Saxo Bank, said.
“The EU summit could get quite interesting behind closed doors given Merkel's statement yesterday that she would not hesitate to disagree with Hollande,” he said, adding that soft physical demand also put the gold price at some risk of further corrections.
France's Francois Hollande will push a proposal for mutualising European debt at an informal summit of EU leaders in Brussels this week, increasing pressure on German Chancellor Angela Merkel to drop her opposition to the idea.
The new French president raised the idea of bonds jointly underwritten by all euro zone member states during G8 talks at the weekend and intends to raise it again when EU leaders meet on May 23, even if it goes against Merkel's wishes.
Gold tends to trade together with the euro, so any weakness in the single European currency can lead to investors in the region cashing in on their bullion positions to realise a higher profit in their local currency.
The drop in the Indian rupee to record lows against the dollar has tempered demand from local consumers in the world's largest bullion market over the last few weeks.
OPTIONS DRAW
Looking at the likely course of the gold price this week, options on June COMEX futures that expire on Thursday show investors are divided on the gold's chances of breaking and staying above $1,600 an ounce.
Most near-the-money open interest, positions in options contracts with strike prices close to the current futures price, is split almost evenly between calls, contracts that give the owner the right, but not the obligation to buy the underlying future at a pre-determined price by a set date, and puts, which confer the right without obligation.
Platinum offered little response to news that Impala Platinum, the world's second-largest platinum producer and South Africa's largest, said it was losing production of 3,000 ounces a day as most workers were not reporting for duty at its Rustenburg mine on Tuesday because of labour unrest.
The mine, shut for six weeks earlier this year because of a power struggle between unions, has been hit again by fresh clashes between the dominant National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (AMCU).
The platinum price, which rose by as much as 24 percent on the year because of the strike that spanned February and March, traded down 0.2 percent on the day at $1,453.49 an ounce.
“By its own account, platinum miner Impala is currently losing 3,000 ounces per day due to another labour unrest at its Rustenburg platinum mine in South Africa. The mine accounts for 15 percent of worldwide platinum production,” Commerzbank said in a note.
The impact of the euro zone debt crisis on the global economy, and in particular, on the European car market, where platinum is used extensively in catalytic converters for diesel vehicles, has prompted speculators in US platinum futures to cut their holdings to their lowest level in 2-1/2 years over the course of the last three months.
Holdings of platinum in exchange-traded products have also eroded since hitting a record 1.398 million ounces in early March and are down to 1.323 million ounces, their lowest in nearly four months.
Yet platinum remains the best-performing precious metal of 2012 to date, with a gain of 5.2 percent, compared with a rise of 1.2 percent in gold and a loss of 6.25 percent in palladium .
Palladium was down 0.3 percent on the day at $607.65 an ounce, having pared earlier gains.
Silver was down 0.8 percent at $28.19 an ounce. - Reuters