PRECIOUS METALS: Europe Worries Push Gold To 4-Month Low - Wall Street Journal

--Comex June gold settles down 2.1% at $1,604.50 a troy ounce

--Euro-zone worries prop up dollar, hitting gold and other commodities

--Greece struggles to form government after Sunday elections, raising default fears

--Diminished expectations for central bank action have weighed on gold since February

        By Matt Day      Of DOW JONES NEWSWIRES      

NEW YORK (Dow Jones)--Fresh worries about Europe's debt crisis spurred investor demand for cash and sparked a wave of selling in the gold market Tuesday, pushing futures briefly below the $1,600 mark and to their lowest settlement price since the first trading day of 2012.

The most actively traded gold contract, for June delivery, fell $34.60, or 2.1%, to settle at $1,604.50 a troy ounce on the Comex division of the New York Mercantile Exchange, the lowest ending price since Jan. 3. The contract for May delivery also settled 2.1% lower, at $1,604 an ounce.

Greek political parties showed little progress Tuesday toward forming a coalition government after Sunday's parliamentary elections, renewing fears that political gridlock there could push the debt-laden country toward a default or exit from the euro zone. Other investors were worried about potential tension between Germany and France, two euro-zone political heavyweights, after the challenger's victory in France's presidential election.

Gold futures have generally pointed lower in recent months when euro-zone debt worries were front and center, as investors chose the U.S. dollar as a safe place to park cash. That was the case again on Tuesday.

"People are trying to get out of gold and into cash and the dollar," said Robin Bhar, an analyst with Societe General.

A stronger dollar makes dollar-denominated gold futures appear more expensive for potential buyers using other currencies. And amid rising fears of a potential freeze in Europe's financial system, cash is seen as a more flexible asset than precious-metals futures.

Declines in equities and other commodities markets accelerated the selling in gold, traders said, as market participants were forced to raise cash to cover losses elsewhere.

"When you have big selloffs in equities, people need to raise cash," said Matt Zeman, head of trading with brokerage Kingsview Financial. "And people who would otherwise like to remain long gold are forced to liquidate those positions to raise cash."

Gold fell as low as $1,595.50 a troy ounce, nearly wiping out the market's gains in 2012. The most actively traded gold contract ended 2011 at $1,566.80 a troy ounce.

Gold prices surged at the start of the year, largely on the view that central banks in Europe and the U.S. would take fresh monetary-policy steps to boost economic growth. Such policies can send investors looking for a hedge against declines in paper currencies into gold.

But with the Federal Reserve silent recently on potential new stimulative measures, and the European Central Bank urging national governments to take charge of propping up growth, speculators began to sour on gold's prospects. Prices have fallen from their late February highs just below $1,800 a troy ounce, and a set of market watchers have pared their price forecasts.

Neither the Fed nor the ECB "is acting as the big liquidity pump that gold is looking for," said Adrian Ash, head of research with online metals dealer BullionVault. Gold's rise during the last decade "has been all about the wall of money pumped out of central banks."

Silver, which investors also tend to view as a dollar alternative, slumped 63.3 cents, or 2.2%, to $29.459 a troy ounce, the lowest settlement price since mid-January.

"There isn't an awful lot of speculative money going into gold and silver right now," Ash said.

-By Matt Day, Dow Jones Newswires; 212-416-4986; matt.day@dowjones.com

--Francesca Freeman and Tatyana Shumsky contributed to this article.