By Jan Harvey and Amanda Cooper
LONDON (Reuters) - Gold eased below $1,560 an ounce on Tuesday after the failure of Greek politicians to form a government sent the single European currency to four-month lows and unnerved investors over the profitability of holding euro-denominated assets.
With gold's decline to its lowest since late December, consumers in top purchasing-nations such as India have delved into the market, which analysts said could protect the bullion price from a more protracted decline.
Gold remains vulnerable, however, as worries over the euro zone's future simmer in the background, keeping the single currency under pressure.
Spot gold was down 0.1 percent at $1,555.69 an ounce at 1350 GMT, while U.S. gold futures for June delivery were down $8.70 an ounce at $1,552.10.
Gold earlier hit its lowest since December 30 at $1,547.99 an ounce and is down nearly 7 percent in May so far, on track for its worst monthly performance since December and a fourth monthly loss, as talk that Greece could exit the euro zone spooked investors.
While concerns over euro zone debt prompted investors to buy gold as a haven from risk in 2011, it has moved in line with other commodities this year, wilting under pressure from the stronger dollar.
"The market has not given up on gold completely, but it certainly is tired, it is completely oversold, it needs a breather and to consolidate but ... people are sceptical about the upside and gold has been completely caught up in macro selling," Andrey Kryuchenkov, VTB Capital analyst, said.
The failure of Greek politicians to agree on forming a government has prompted speculation that the country may have to exit the euro zone if it does not adhere to the terms of its international bailout programme.
Germany pulled the euro zone's economy back from the brink of recession at the start of 2012 but stagnation in France and contraction in southern Europe underlined sharply differing fortunes in a bloc labouring under the effects of austerity.
Analysts said any bounce in the euro could run out of steam above $1.2880-$1.2900, with peripheral bond yields still at elevated levels, highlighting the risk of contagion from the Greek deadlock spreading to other euro zone countries.
"(Gold's) safe haven status has been tarnished," Richcomm Global Services senior analyst Pradeep Unni said. "It will wobble on the euro's weakness, but in a very short term, bargain hunting and pent-up demand will emerge taking it higher."
European shares gave up earlier gains to fall to their lowest level since the start of 2012, while yields on the debt of highly indebted euro zone nations such as Spain and Italy shot higher.
ASIAN BUYERS STEP IN
In spite of gold's tendency to decline in line with the euro, physical demand among major Asian consumers also worked in gold's favour, traders reported, with buyers stepping in to take advantage of its slide below $1,550 an ounce.
"Jewellers have been buying a lot. At the moment supply is a bit tight for immediate delivery," said a physical dealer in Singapore. "Refiners can't deliver immediate gold because there's a sudden surge in demand. We're seeing demand from India, Thailand and Indonesia."
Nonetheless, dealers in major consumer India say more losses are expected in the precious metal as the rupee strengthens, making dollar-priced bullion more expensive for local buyers.
"Gold could be volatile due to rupee moves and could fall lower if the currency appreciates," said Gnanasekar Thiagarajan, director with Commtrendz Research.
Holdings of gold-backed exchange-traded funds monitored by Reuters, which issue securities backed by physical metal, fell by nearly 100,000 ounces on Monday, data from the funds showed.
Among other precious metals, silver fell 0.1 percent to $28.13 40 an ounce, having dropped to its lowest since January 3 earlier at $27.93.
Platinum group metals outperformed as the annual Platinum Group meeting of miners, refiners, traders, recyclers and consumers in London continued into a second day.
Platinum was up 0.7 percent at $1,441.99 an ounce, while palladium was up 0.9 percent at $591.97 an ounce.
A report by Johnson Matthey on Monday showed both the platinum and palladium markets in surplus last year. However, the palladium market is expected to swing back into deficit next year as selling of physical metal by investors and sales from Russian state stocks dry up.
(Additional reporting by Lewa Pardomuan in Singapore; Editing by Jason Neely and Alison Birrane)