LONDON—The spot price of gold dropped in Europe, weighed down by a stronger dollar and a broad fall in investors' willingness to hold riskier assets following news of a surprise Greek referendum.
But analysts and traders said they see solid support for the yellow metal, particularly if risk aversion persists.
Ahead of the New York day Tuesday, spot gold traded at $1,703.80 a troy ounce, down $11.30, or 0.7%.
Equities, the euro and commodities came under heavy pressure Tuesday as news that Greece will hold a referendum on it European Union bailout package. Given the very public opposition to the country's spending cuts, news of the referendum, which is expected to take place in January, has sparked doubts about the deal's approval.
While gold lost ground along with broad commodities in reaction to the news and on the negative influence of a stronger greenback, which makes dollar-denominated commodities appear more expensive to other currency-holders,losses were relatively contained. Although the metal did slip below $1,700 an ounce in early European trade, bargain-hunting prevented losses escalating, said traders.
Although gold has exhibited a closer-than-usual correlation to risk-related assets in recent weeks, its role as a hedge against insecurity looks to be strengthening somewhat, and it should benefit if macroeconomic concerns escalate, said traders and analysts.
While consolidation below $1,750 an ounce amid choppy macro-driven trade is likely this week, "intensifying risk aversion could still push the market higher," said VTB Capital analyst Andrey Kryuchenkov.
"Much is to depend on global risk sentiment," he said.
Market players don't see sister metal silver showing the same resilience, though.
"Silver is under pressure on the back of equity market losses and the ongoing soap opera that is European politics," said a London-based trader, adding that silver is acting "very much as an industrial metal right now."
Unlike gold, which has limited industrial end-uses, the majority of silver demand comes from industry, making it more sensitive to wider economic sentiment. Spot silver was down 23 cents, or 2.5%, at $33.38 an ounce.
Among other precious metals, spot platinum was down $23, or 1.4%, at $1,572 an ounce, and spot palladium was $12, or 1.9%, lower at $631 an ounce.
Write to Francesca Freeman at francesca.freeman@dowjones.com
