Gold falls on dollar gains, Europe, China worries

SAN FRANCISCO (MarketWatch) � Gold snapped a two-session winning streak on Monday, falling as worrying political developments in the euro zone and data from China showing continued contraction for the country�s manufacturing sector spurred a broad market sell-off.

Gold for June delivery �fell $10.20, or 0.6%, to $1,632.60 an ounce on the Comex division of the New York Mercantile Exchange. That was gold�s lowest settlement in more than two weeks.

The metal settled marginally higher Friday at $1,642.80 an ounce but ended the week down 1%.

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Gold was unable to catch any safe-haven flows despite its reputation as a safer investment.

�When you see a sell-off like today, investors jump out of gold,� said Rohit Savant, an analyst with CPM Group in New York. �It�s more a rush to cash� though a trickle of safe-haven flows could follow in the next couple of days, he added.

Investors didn�t have to look far to find news to unsettle them, which also reflected in triple-digit losses for U.S. stocks and a steep decline for oil and most other commodities.

There are worries about increased political risk in Europe after the Socialist Party candidate for the French presidential election, Fran�ois Hollande, took a narrow lead in the first round of the country�s election.

Hollande and incumbent Nicolas Sarkozy will face off in a second-round election May 6. Far-right candidate Marine Le Pen finished a surprise third.

Adding to that, the Netherlands is facing an early election as Dutch Prime Minister Mark Rutte tendered his resignation Monday after the weekend collapse of budget talks. The right-wing Freedom Party walked out of budget negotiations calling for extra budget cuts, and strategists are worried Holland's triple-A credit rating could be under threat.

From China, a preliminary reading of a gauge of business activity also worried investors. The HSBC Chinese manufacturing Purchasing Managers� Index rose to a two-month high of 49.1, but readings below 50 indicate a contraction rather than an expansion.

U.S. stocks opened lower and promptly got hammered Monday, with the Dow Jones Industrial Average DJIA �recently off 138 points, or 1.1%, to $12,891.

Oil futures were off 1%. Gold has tended to track U.S. stocks and other commodities such as oil, forgoing its role as a safe-haven asset as U.S. bonds and the dollar take the safety mantle.

The dollar index DXY �Monday jumped to 79.626 from 79.140 in late North American trading on Friday. A stronger dollar is detrimental to gold and other commodities as it makes them more expensive for holders of other currencies.

Meanwhile, May silver �fell $1.12, or 3.5%, to $30.53 an ounce, leading losses for the day among other precious and base metals. That was silver�s lowest finish since mid-January.

Copper for May delivery �fell 7 cents, or 2%, to $3.63 per pound. China is a top consumer of copper and other base and precious metals.

July platinum �lost $27.90, or 1.8%, to $1,556.30 an ounce. That was platinum�s lowest settlement since late January.

Sister metal palladium for June delivery �dropped $6, or 0.9%, to $670.90 an ounce.