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SubscribeGold prices fell in Asian trading on Monday as investors went long on the metal's traditional hedge, the dollar, over uncertainty as to whether or not Spain will request a bailout.
U.S. earnings season is gearing up, and investors sought safety in the greenback to see how companies performed in the third quarter of this year.
On the Comex division of the New York Mercantile Exchange, gold futures for December delivery were down 0.87% at USD1,744.45 a troy ounce, up from a session low of USD1,743.85 and down from a high of USD1,746.35 a troy ounce.
Gold futures were likely to test support at USD1,739.35 a troy ounce, the low from Sept. 26, and resistance at USD1,774.95, Friday's high.
Uncertainty sent investors to the safety of the dollar on Monday.
Last week, Standard & Poor's said it lowered Spain's long-term credit rating to 'BBB-' from 'BBB+' and cut its short-term credit rating to 'A-3' from 'A-2'.
The ratings agency said Spain's deepening economic recession is limiting the Spanish government's policy options and added that rising unemployment and spending constraints are likely to fuel social discontent and contribute to friction between Spain's central and regional governments.
"In our view, the capacity of Spain's political institutions (both domestic and multilateral) to deal with the severe challenges posed by the current economic and financial crisis is declining," Standard & Poor's said in a statement.
The news prompted many investors to interpret the down****e as a tipping point pushing Madrid closer to requesting financial aid from its neighbors, which could spark a risk-on trading session that would send the dollar falling and gold rising alongside higher-yielding currencies and stocks.
A bailout would allow the European Central Bank to step in and buy Spanish sovereign debt in the secondary market, which would lower borrowing costs in the crisis-weary country.
Investors also stocked up on dollar positions on Monday as part of a wait-and-see trading session ahead of a flurry of data due out of the U.S. this week, including reports on retail sales, manufacturing activity, initial jobless claims and housing starts, among others.
Elsewhere on the Comex, silver for December delivery was down 1.40% and trading at USD33.198 a troy ounce, while copper for December delivery was
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