(Reuters) - Gold prices eked out small gains in choppy trade on Monday as safe-haven buying kicked in and a relief rally in other financial markets faded when investor enthusiasm about a European bailout for Spain's banks dried up.
Investors sought refuge in bullion as deepening worry about saddling Spain with further debt of up to $125 billion knocked the euro off three-week highs and sent equities into retreat.
Spot gold was up 0.2 percent at $1,595.69 an ounce by 5:04 p.m. EDT (2104 GMT) on a late burst of safe-haven buying. Still, it finished off its session high of $1,607.95 and below the key $1,600 per oz mark.
Gold veered away from its recent correlation with assets perceived as more risky. The euro, S&P 500 index finance/markets/index?symbol=us%21spx">.SPX and crude oil all finished near session lows on the lingering European debt fears.
The market was still vulnerable though. Disappointment about the small size of the bailout had left many investors unconvinced that Europe was committed to roll out more monetary stimulus to fix the crisis and sent gold briefly into negative territory to an intraday low around $1,583, traders said.
U.S. gold futures for August delivery settled up $5.40 an ounce at $1,596.80, Prices were volatile with volume sharply lower than usual at about half of its 30-day average, preliminary Reuters data showed.
Greece's general election next Sunday could derail the region's effort to prevent the crisis from escalating. Some said this could send global financial markets into a tailspin and drag gold lower.
"We are still in a liquidation phase for gold. Investors are still very concerned about the debt problem, and gold is often a perfect source of liquidity," said Adrian Day of Adrian Day Asset Management, which has $160 million in assets.
But Day added that gold should rise when central banks around the world use monetary stimulus to boost their economies.
FED STIMULUS EYED
Gold has struggled for traction above $1,600 an ounce since breaching that level just over a week ago after soft U.S. jobs data sparked talk of a third round of monetary easing and fueled gold's biggest one-day rise in more than three years.
However, that climb quickly lost steam after Federal Reserve Chairman Ben Bernanke gave no further hint of new stimulus measures in a speech last week. Gold lost 2 percent last week.
Meanwhile, platinum group metals outperformed on hopes a solution to the euro zone debt crisis may start to emerge. Platinum and palladium both rose almost 2 percent, following copper's gain.
Spot platinum was up 1.4 percent at $1,441.74 an ounce, while spot palladium rallied 1.6 percent to $619.22 an ounce.
Silver was up 0.5 percent $28.62 an ounce.