Gold prices eased in volatile trade on Tuesday, briefly extending the previous session’s hefty 2.5 percent slide below $1,800 an ounce, as the dollar’s move into positive territory put fresh pressure on the precious metal.

The euro extended losses against the U.S. currency as European stockmarkets failed to hold onto their early gains, with investors awaiting greater clarity on the outlook for the euro zone debt crisis.

Gold rose earlier along with stocks as reports that China could offer financial support to debt-laden Italy took some heat out of Monday’s sell-off, but the assets’ downward path later resumed.

Spot gold was down 0.4 percent at $1,807.19 an ounce at 0928 GMT, having briefly fallen as low as $1,795.19. It has declined 2.7 percent so far this week, after posting its biggest monthly gain since November 2009 in August.

“You can hardly call (gold) a safe haven with those swings,” said Saxo Bank senior manager Ole Hansen. “Buyers still emerge on sell-offs, but it looks like the bullish investor has got to be a bit patient right now.”

“We have failed to make new highs despite the crisis intensifying over the last few days. (There) could be general risk reduction as banks are cutting/reducing lines to traders or profit is booked to offset losses.”

Currency traders were on edge ahead of a key Italian bond auction. The yield spread between five-year Italian and German government bonds hit a record high on Tuesday before the auction, which is testing market sentiment for Italian paper.

Concerns over the ability of some euro zone economies — chiefly Portugal, Italy, Ireland, Greece and Spain — to manage their burgeoning debt was a key factor driving gold prices to record highs above $1,900 an ounce earlier this year.

But the metal has faced headwinds around that level, twice failing to sustain a rise above $1,900 an ounce. The dollar, strength, which typically pressures gold but which has risen in line with the precious metal in recent years as both benefit from risk aversion, is emerging as a negative factor.

“A stronger dollar may make the journey north more of a struggle,” said UBS in a report, noting that action by the Bank of Japan and Swiss National Bank to curb strength in the yen and franc meant “the dollar is emerging as the last safe haven among the world’s major currencies for risk-averse investors.”

“Clearly gold has opportunities here too, though a stronger dollar presents an obstacle in the very short term,” it added. – Reuters