Gold and silver fall

Disappointing global economic data and anxiety about Europe's debt crisis have drawn investors to the safety of the US dollar, denting demand for gold and pushing the precious metal to its lowest price in more than two weeks.

The most actively traded contract, for June delivery, fell $US10.20, or 0.6 per cent, to settle at $US1,632.60 a troy ounce on the Comex division of the New York Mercantile Exchange. That's the lowest settlement price since April 5.

Gold fell sharply early in European trading hours, as heavy selling jolted the market awake amid thin liquidity. The collapse of austerity talks in the Netherlands, the challenger's lead in the first round of France's presidential elections, and data showing contraction in the euro zone's manufacturing and service economies all gave gold traders pause Monday.

"Europe sneezed and we are catching cold," said George Gero, a vice president and precious metals strategist with RBC Capital Markets.

Some investors turn to gold as a safe-harbour from turmoil in other markets, but that dynamic hasn't held when worries about Europe's debt crisis were front and centre.

A potential freeze in Europe's financial system has spurred traders to favour the flexibility of cash instead of precious metals futures. And rising concerns about Europe tend to prop up investment in US dollar-denominated debt, driving the currency higher and weighing on dollar-denominated gold by making the futures appear more expensive for buyers using other currencies.

Also weighing on gold on Monday was diminished expectations that the Federal Reserve would soon announce fresh steps to support US economic growth, said Bart Melek, head of commodity strategy with TD Securities.

"People are saying 'I don't think we're going to see anything definitive'" from the Federal Reserve, he said.

Gold tends to benefit from such accommodative monetary policies, as investors seek a hedge against weakness in paper currencies. But with the US economy still expanding at a faster clip than many had expected entering the year, and some Federal Reserve officials vocally reluctant to take further action, the central bank isn't widely expected to give the gold market new fuel with its policy statement Wednesday afternoon.

Industrial metals saw sharper declines than gold Monday on weaker demand expectations after the release of European economic data and news of a continued manufacturing slowdown in key raw materials consumer China.

HSBC's gauge of China's nationwide manufacturing activity remained in contraction for a sixth consecutive month in April, according to preliminary estimates.

Silver, which sees more use by industry than as an investment, settled down 3.5 per cent at $US30.531 a troy ounce for the most-active May contract, the lowest price since January 17.

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