[SINGAPORE] Gold retained sharp overnight losses on Tuesday as its safe-haven appeal was diminished by increasing hopes that Greece would reach a deal with its creditors to avoid a default, and strength in equities.
Spot gold was steady at US$1,185.50 an ounce by 0656 GMT, clinging to the 1.3 per cent loss on Monday. Asian shares and US stock futures rose on hopes of a Greek deal.
Bullion, often seen as an alternative investment during times of uncertainty, had seen modest support in the last few days as Greece struggled to strike a deal with its international creditors to avoid a default that could have seen it exit the euro zone.
But Greece took a step back from the abyss on Monday with the presentation of new budget proposals that euro zone leaders welcomed as a basis for a possible agreement in the coming days.
European Council President Donald Tusk said the aim was to have the Eurogroup finance ministers approve a cash-for-reform package on Wednesday evening and put it to euro zone leaders for final endorsement on Thursday morning.
"It seems that barring some last-minute surprises, the Greek talks will likely result in an agreement that would kick the can down the road, but which would avoid a default," said INTL FCStone analyst Edward Meir, adding this could mean further selling pressure on gold.
"With the removal of the 'Greek irritant' as a bullish issue, gold will likely revert to trading more on its own fundamentals, which at this stage, do not look that inspiring,"Meir said.
He pointed to sluggish physical demand and the recent trend of outflows from exchange-traded funds (ETFs).
Assets in SPDR Gold Trust, the top gold-backed ETF, are near their lowest since September 2008, though they did post a small jump in holdings on Monday to 705.48 tonnes, the first increase since May 26.
Physical demand in top consuming region Asia has been sluggish as monsoon concerns weighed on demand in India and a better-yielding stock market kept buyers away in China.
The predominant factor weighing on gold is the expectation that the Federal Reserve will hike US interest rates later this year.
Data on Monday showed US home resales surged to a 5-1/2-year high in May as first-time buyers stepped into the market, the latest indication that housing and overall economic activity were gathering steam in the second quarter.
Strong economic data could prompt the Fed to raise rates soon. As a non-interest-paying asset, demand for the metal could be hurt.