LONDON: Gold was set for its steepest one-day fall in a month on Monday, under pressure from a retreat in investor risk appetite that undermined the euro, although the bullion price remained within sight of last week's seven-week highs.
The euro fell back from six-week highs, and European shares came under pressure from a decline across the banking sector after Greece and its creditors failed to come up with an agreement on a debt swap ahead of the start of a key European summit.
EU leaders, who will sign off on a permanent rescue fund for the euro zone on Monday, are expected to agree on a balanced budget rule in national legislation, but Greece's unresolved problems cast a shadow on the discussions.
Last week, the gold price staged its largest weekly rally in three months to reach a high of $1,739 an ounce after the Federal Reserve signalled it expected no change to near-zero US interest rates for nearly three years and data showed the US economy grew more slowly than expected in the final quarter of 2011.
Spot gold was down 1 percent at $1,720.00 an ounce at 1100 GMT, having risen by around 4.5 percent the previous week.
"Without a doubt, this morning the main story is the risk sell-off, whether we like it or not these days, on ... what concerns there are towards the euro and euro zone," RBS analyst NIkos Kavalis said.
"At the moment, we think a correction is very possible for the (precious) sector overall, rather than for one of them. But, if this were to materialise, this would be a bull market correction rather than a change in trend and a change in sentiment," he said.
Reflecting investors' growing appetite for gold, data on Friday from the Commodity Futures Trading Commission showed speculators in US gold futures raised their holdings for a third week in a row, marking the longest stretch of increases in the net non-commercial position on COMEX in six months.
Also, holdings of metal in exchange-traded funds backed by physical gold, often used by analysts as a gauge of more immediate switches in investor demand, rose by nearly 200,000 ounces last week to 69.324 million ounces, their highest since late December, following inflows of metal into the SPDR Gold Trust, the world's largest gold ETF, as well as into the ETF Securities' Swiss gold fund.
