Gold extended losses on Wednesday to slip to its weakest level since late December after efforts to form a new government in Greece collapsed, prompting investors to cut their exposure to the precious metal.
Bullion has this year been moving in tandem with assets that are perceived to be risky, casting off its status as a safe-haven in times of economic instability.
Concerns about upheaval in the euro zone hit the euro and sent share prices lower across Asia as Greek political leaders meet Wednesday to form a caretaker government that will lead the country into its second election in just over a month.
US June gold futures, which often dictate spot gold, dropped more than 1% to a low of $1,532.7 an ounce, their lowest since December 29. Cash gold was also at a 4-1/2 month low.
"Everybody is rushing to buy the US dollar. A strong dollar is negative for gold for the time being," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that demand from jewellers was limited due to volatile prices.
"Jewellers don't know what to do. Maybe when the price has stabilised at some levels, they will start to reenter the market. There's a bit of scale-down buying."
Spot gold was down $9.90 an ounce to $1,534.20 by 0422 GMT, having hit an intraday low of $1,532.09.
Gold rallied to a record of around $1,920 an ounce in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe. But bullion is moving with riskier assets this year as investors turn to the safety of the dollar and the euro hits multi-month lows.
Money managers in gold futures and options slashed their net long positions by 20% to the lowest level since December 2008, as investors aggressively unwound their bullish bets in the precious metal after a sharp price pullback.
The euro hit a four-month low on Wednesday, a day after Greece called a new election that may hand victory to leftists opposed to the terms of an EU bailout and raise the risk of the country exiting the euro zone.
Party leaders will convene at the presidential palace at 2 p.m. (1100 GMT) but said they had little hope President Karolos Papoulias's offer would resolve a political crisis that has fuelled speculation Greece's days in the euro zone are numbered.
In equity markets, MSCI's broadest index of Asia-Pacific shares outside Japan extended losses for the fourth consecutive day, sliding 2% to a new 4-month low after retreating as much as 1.1% on Tuesday. The index has dropped more than 8% since May 2.
In the physical market in Singapore, jewellery makers from Thailand snapped up gold on the lower prices, while buyers from top consumer India could also return after buying some gold overnight.
"Definitely physical buying has gone up, although demand is not overwhelming. Indonesia has slowed down because there's a public holiday tomorrow, while Thailand is buying," said a dealer in Singapore.
"India did buy gold last night. They are not really in the market yet today, but I am sure they will be buying."
The wedding season is underway in India and will taper off by the end of the month. Gold jewellery is an essential part of the dowry basket Indian parents give their daughters at weddings.