Int'l gold inches down on heightened Spain worries

Gold edged lower on Monday under the pressure of a stronger dollar, as worries about the euro zone debt crisis deepened after Spain stoked fears that it might need a sovereign bailout.

Spain's woes, highlighted by two indebted regions seeking financial aid from the central government, drove the euro to a two-year trough against the dollar, which strengthened the greenback and made gold and other commodities priced in the US currency less attractive.

Spain is the euro zone's fourth largest economy and investors are worried it may be forced to follow Greece, Portugal and Ireland, which were thrown lifelines by international lenders after their borrowing costs shot above sustainable levels.

"The euro zone's problems will resurface and keep the euro weak, and the dollar on the strong side," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

The dollar has climbed more than 4 percent against a basket of currencies so far this year, weighing on gold that rose just about 1% during the same period.

The lack of commitment to further monetary stimulus from the US Federal Reserve has left gold trapped in an increasingly narrow range, as investors await clarification from the next Fed policy meeting at the end of the month.

"There is definitely scope for a big directional move. Since we don't expect QE (quantitative easing) to materialise, there is the risk that prices should go south."

Spot gold edged down 0.3% to $1,579.29 an ounce by 0346 GMT, after posting a 0.3-% loss last week.

US gold futures contract for August delivery lost 0.2% to $1,579.10.

Technical analysis suggested that spot gold would be neutral in the range of $1,567.34 and $1,597 an ounce, said Reuters market analyst Wang Tao.

Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell for the second straight session to a six-month low of 1,254.64 tonnes by July 20.

Speculators raised net long positions in U.S. gold futures and options to 92,964 contracts in the week ended July 17, but the net length was still near a 3.5-year low of 77,325 contracts hit in early June.

"A lot of fund managers are just content sitting on cash without loading up on anything at all. They are happy to be in as stable a portfolio as possible," said a Singapore-based trader.

In recent months, safe haven assets such as the dollar, yen and US. Treasuries have attracted an increasing flow of investment, as market participants worry about a grimmer global economic outlook.

Treasury bills have attracted a lot of save haven flow, sending US benchmark 10-year yields to a record low.

Spot platinum fell to a three-week low of $1,394.5, as the grim economic outlook weighs. Its discount to gold stood at just above $180 an ounce, its deepest since early June.