Gold fell on Monday as news that the U.S. authorities have charged Goldman Sachs with fraud hurt commodities but lifted the U.S. dollar, though it recovered from two-week lows as some investors sought the metal as a haven.
Goldman Sachs was charged on Friday with fraud by the U.S. Securities and Exchange Commission over its marketing of a subprime mortgage product, sparking an immediate slide in assets seen as higher risk, like equities and commodities.
Spot gold hit a low of $1,123.15 (U.S.) and was bid at $1,129.55 an ounce at 1212 GMT, against $1,136.45 late in New York on Friday.
Commodities tumbled across the board on Friday after the news, and most are extending those losses on Monday, with oil falling more than 2 per cent and copper sliding to three-week lows.
"There are concerns about Goldman Sachs," said Citigroup analyst David Thurtell. "There was a bit of a rush for the exits...people with long positions who are watching their profits disappear just want to get out and reassess."
Gold specifically might be expected to take some support from the sharp drop in risk appetite, he said. "Gold is a safe haven," he added. "It did fall $20-30, but it has held up relatively well."
U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $6.70 to $1,130.20 an ounce.
Currency effects also weighed on gold, as the dollar strengthened broadly. Rising risk aversion weighed on higher yielding currencies like the euro, with lingering concerns over Greece's debt levels also pressuring the single currency.
Strength in the U.S. unit curbs gold's appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.
"In the near term, we expect the developments surrounding Goldman to overshadow all other issues that previously dominated gold trading, including the pace and tempo of the economic recovery and its impact on monetary policy (and) the possibility of a CNY revaluation," said HSBC in a note.
European shares fell on Monday. In addition to Goldman, airline stocks were hit by transport chaos as a cloud of volcanic ash spreading from Iceland across Europe grounded planes.
On the physical side of the gold market, holdings of the world's largest bullion exchange-traded fund, New York's SPDR Gold Trust , held at record levels on Friday.
However, a rapid rise in speculative net long positions in New York gold futures is worrying some analysts.
"As we enter a new week, particularly following a negative weekly close, the focus of investor positioning in the gold market comes further under the spotlight," UBS analyst Edel Tully said in a report on Monday.
"There is little doubt that such positioning is bordering on crowded," she said. "So long as risk aversion remains in place, the danger is that gold longs will run for the exit as fast as they entered over the previous two weeks."
However, a price drop linked to a liquidation among speculators may attract more physical investors back to the market, she noted.
Other precious metals declined in line with gold, with silver bid at $17.58 an ounce against $17.67.
Holdings of the largest silver ETF, the iShares Silver Trust , fell another 45.74 tonnes on Friday, bringing their total decline this year to 580 tonnes, or 6 per cent.
Platinum was at $1,676.50 an ounce against $1,690, while palladium was at $517.50 against $528.50.