LONDON(Reuters) - Gold buckled under the pressure of a stronger dollar on Tuesday after the Greek prime minister shocked financial markets by calling a referendum on an agreed bailout package and the collapse of failed broker MF Global dented commodities.
Prime Minister George Papandreou's surprise decision to call a popular vote on the bailout dented most assets priced in euros to the benefit of the U.S. dollar.
Italian 10-year bond yields have risen by more than 30 basis points in the last three days to their highest since mid-August, in their largest three-day rise in almost a month, in spite of the European Central Bank buying Italian debt in the secondary markets to anchor yields.
The cost of insuring euro zone sovereign debt against default rose broadly, putting the euro under pressure and weighing on European financial stocks, while gold priced in euros neared one-month highs.
The fallout from the collapse of MF Global Holdings Ltd rippled through global exchanges, as operators moved to suspend the U.S. futures broker or limit trades of its customers after the company filed for bankruptcy protection on Monday following bad bets on euro zone debt.
Spot gold was last down 0.8 percent at $1,700.10 an ounce by 1100 GMT.
"The euro is very weak, the dollar is strong and that has caused selling across the board. Greece has caused even more confusion by calling for a referendum and we can't ignore the washout from the MF Global story because their positions are being unwound," said Credit Agricole analyst Robin Bhar.
He added that the Bank of Japan's decision to intervene in currency markets on Monday to stall the rise of the yen -- sometimes used as a safe-haven currency because of the country's low yields -- could ultimately drive gold higher.
"Maybe gold is reeling from some of that liquidation, it's holding above $1,700 and whilst it does, it looks okay. If it does fall below there, people will flock to buy it. If the BoJ has done what the Swiss (central) bank has done and cap currency strength, that removes yet another safe haven, so you've got the dollar, you've got gold and you've got U.S. Treasuries on an ever-dwindling list," Bhar said.
Although the dollar has been one of the major beneficiaries of the angst surrounding the euro zone, investor interest in gold has continued to pick up this week, as reflected by the inflows of metal into exchange-traded funds.
Holdings of gold in the major exchange-traded funds (ETF) tracked by Reuters have risen by over 800,000 oz this month, marking their first monthly increase since July.
"Our view is that gold is poised for a move significantly higher as the Greek tragedy has not yet fully played out yet the safe haven role will prevail as the key driver of gold prices as investors seek a lifeboat in a crisis," said Ross Norman, chief executive of bullion broker Sharps Pixley.
Gold has moved in tighter lockstep with industrial commodities such as copper or risk asset such as equities in the last month and has thus been more prone to falling in times of heightened uncertainty, rather than adopting its traditional safe-haven role and benefiting from such turmoil.
The weaker-than-expected China official purchasing managers index for October increased the gloom on the global economic outlook, but it also reinforced the expectation that China's central bank could soon start to loosen up its monetary policy.
A measure of U.S. nationwide manufacturing is expected to show factory activity expanded modestly in October. The Institute for Supply Management survey is expected to rise to 52.0 from 51.6 in September. A reading of 50 separates expansion from contraction.
Physical gold market activity was muted, and premiums in Hong Kong eased to near $1 an ounce over spot prices, from $1-$1.50 last week.
Silver was last down 2.7 percent at $33.31 an ounce, while platinum fell 1.3 percent to $1,572.49 an ounce and palladium fell 1.7 percent to $630.25.
For the platinum group metals, Tuesday's data on U.S. car sales could prove to be supportive. A Reuters poll forecasts 13.20 million vehicles were sold in October in the world's second-largest car market.
Palladium particularly relies on the U.S. and Chinese economies for demand as the car markets of these two countries are dominated by gasoline-powered vehicles, in which catalytic converters require a higher loading of this metal in comparison to the catalysts used in diesel vehicles.
(Additional reporting by Rujun Shen in Singapore; editing by Anthony Barker)