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NEW YORK/LONDON (Reuters) - Gold fell more than 1 percent on Monday, after the market's favoured French presidential candidate won the first round of the country's election, but prices pared losses as U.S. Treasury yields came off their highs.
Centrist Emmanuel Macron took a big step towards the French presidency on Sunday by winning the first round of voting, with the latest opinion polls showing him as strong favourite to beat far-right candidate Marine Le Pen in the final run-off.
The news represented a defeat for anti-European Union forces on the right and left of French politics, sent European shares and the euro vaulting higher and sparked a sell-off in safe-haven bullion.
Spot gold XAU= was down 0.7 percent at $1,275 an ounce by 3:19 p.m. EDT (1919 GMT), having touched its lowest in nearly two weeks at $1,265.90. U.S. gold futures GCcv1 settled down 0.9 percent at $1,277.50.
Gold came off its lows as the U.S. dollar index .DXY rebounded from a 5-1/2-month low and 10-year U.S. Treasury yields pared gains made earlier in the session.
"For the moment some of the tail risk in the form of a shock win by any of the other candidates has been averted. We see more downside in the very short term, leading up to the (French election) run-off in two weeks," said Societe Generale analyst Robin Bhar.
He added, however, that a weaker dollar and simmering geopolitical tensions in North Korea and the Middle East were probably enough to keep gold underpinned at about $1,250.
"We have shifted our three-month view to bearish from bullish, targeting $1,200/oz from $1,300/oz previously," said Giovanni Staunovo, analyst for UBS Chief Investment Office, adding that two factors drove this short-term view.
"The market is now underpricing our view of two additional Fed rate hikes this year and the prospect of a balance sheet reduction (and) easing political risks."
In the wider markets, global equity markets rallied to send a gauge of world stock indexes to a record high.
"The predominant factor (for gold) will be the retreat of risk aversion," Simona Gambarini, analyst at Capital Economics, told the Reuters Global Gold Forum.
Escalating geopolitical tensions had prompted speculators to increase their bullish position in COMEX gold to a five-month high in the week to April 18, official data showed.
Spot silver XAG= was down 0.2 percent at $17.85 an ounce after touching a one-month low of $17.65.
Platinum XPT= was down 1 percent at $961.20, while palladium XPD= rose 0.6 percent to $796.50.
Additional reporting by Swati Verma in Bengaluru; Editing by Adrian Croft and Chizu Nomiyama