LONDON (Reuters) - Gold slipped on Friday, extending losses after posting the biggest May drop in 30 years last month, as investors sold assets seen as higher risk like stocks and commodities on mounting concerns over the financial health of Greece and Spain.
The euro fell to another near two-year low versus the dollar on growing uncertainty about how Spain will recapitalize its ailing banking sector and fix its public finances. This pressured assets sensitive to a stronger dollar, like gold.
Spot gold was down 0.6 percent at $1,553.64 an ounce at 7:37 a.m. EDT (1137 GMT), while U.S. gold futures for August delivery were down $9.00 an ounce at $1,555.20.
Traders are also on edge ahead of U.S. non-farm payrolls data later on Friday, a closely-watched snapshot of the strength of the economic recovery there. The report is expected to show the United States added 150,000 jobs last month.
The dollar could benefit from both a stronger number, which could boost confidence in the stability of the U.S. economy, and a soft report, which would likely prompt a flight to quality. If a weak reading sparks talk of more monetary easing, however, it could be positive for gold. <FRX/>
"The payrolls number today could be important in terms of whether it shows ongoing weakness," Deutsche Bank analyst Michael Lewis said. "If we do see that, that could introduce quantitive easing speculation, but at the moment, Europe and downside risks to the euro are the problem for gold.
"We have had quite a big reduction in speculative length for gold, and we're not seeing any significant outflows from exchange-traded funds," he said. "But dollar strength is going to be the big problem over the next few weeks."
Quantitative easing, which basically translates into printing money, would likely undermine the dollar in the medium term and would help keep real interest rates at rock bottom, both gold-positive moves.
Safe-haven German government bond yields hit record lows across the curve, with two-year yields turning negative for the first time, as concerns over Spain's ability to prop up its banking sector drove demand for safe-haven assets. <GVD/EUR>
Assets seen as higher risk were sold, meanwhile, with European shares falling to a fresh 5-month low on growing signs that the debt crises in Spain and Greece were hurting the region's biggest economies. .EU
Other commodities also wilted, with Brent crude oil falling below $100 a barrel for the first time since October 2011 and base metals like copper and aluminum both declining. <O/R> <MET/L>
Gold demand in major consumer India, which has been hit hard by the weak rupee and high and volatile spot prices in recent months, remained lackluster as the week drew to a close.
"One of the issues for investors trying to trade the metal at present is that over the counter flows are thin as key physical players are largely absent," Credit Suisse said in a note.
"Consequently the market is more vulnerable than usual to sharp futures-driven moves, which are in large part, we think, related to algorithmic/systematic trading models, playing for the moment within a $1,530 to $1,590 range," it added.
"Longer-term investors are likely to remain largely on the sidelines until news of sufficient magnitude (either good or bad) appears to shock the market out of the range."
Physical demand in the United States was also soft. The U.S. Mint reported its American Eagle gold coin sales fell by more than half in May, to 50,000 ounces from 107,000 ounces a year before. May sales were more than double those of April, however.
Its silver American Eagle coin sales also fell by more than 900,000 ounces year-on-year to 2.75 million ounces.
Spot silver was down 1.3 percent at $27.41 an ounce.
Spot platinum was down 1.3 percent at $1,390.99 an ounce, while spot palladium was down 1.9 percent at $596.97 an ounce.
The gold/platinum ratio, which measures the number of silver ounces needed to buy an ounce of gold, held at its highest since early January at 1.12 as the white metal underperformed, hurt by concern over demand from European carmakers, amongst others.
"It may require indications of better industrial demand before the PGMs can gain further traction," HSBC said in a note. "The possibility that low prices will constrain mine output is putting a floor on prices, we believe."
Reporting by Jan Harvey; editing by William Hardy and Keiron Henderson