Gold rose on Monday as growing fears over the prospect of a Greek debt default battered European shares and weighed on the euro, but it failed to maintain early sharp gains as investors remained wary of its longer-term outlook.

European shares tumbled more than 2 per cent and the single currency slid as Greeks woke up to shuttered banks, closed cash machines and a climate of rumours on Monday after talks between Athens and its creditors broke down.

Gold, which often benefits from uncertainty in the wider financial markets, initially rallied to a near one-week high at $1,186.91, but later gave up some of those gains.

Spot gold was up 0.2 per cent at $1,176.52 an ounce at 0937 GMT, while US gold futures for August delivery were up $3.40 an ounce at $1,176.60.

“Gold wants to be lower, but it hasn’t been lower because of what’s happened (in Greece),’’ Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.

“The betting is still that the Greek situation will be resolved, but the brinkmanship has been ratcheted up quite dramatically over the weekend.’’

The wider environment remains relatively unfriendly for gold, with the United States still likely to raise interest rates at some point this year, he said. Higher US interest rates would increase the opportunity cost of holding non-yielding gold.

“It’s a struggle to see where the investment demand is going to come from to keep gold at these levels.’’

Investment interest in gold has shown some signs of improvement recently. US Commodity Futures Trading Commission data showed on Friday that hedge funds and money managers raised a bullish bet in COMEX gold futures and options in the week to June 23.

Holdings of the world’s largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares, posted their biggest rise since early February last week or 9.5 tonnes.

The fund recorded a small outflow on Friday, however, of 1.8 tonnes, and its holdings remain little changed since the start of the year.

“Broad investor interest has become relatively positive,’’ Barclays Capital said in a note. “Physical demand has also improved at the margin, particularly as rainfall in India has risen above normal levels. But we would caution that we remain in the seasonally slow period for demand and believe the floor for prices looks vulnerable.”’

Among other precious metals, silver was up 0.3 per cent at $15.80 an ounce, platinum was down 0.9 per cent at $1,065.74 an ounce, and palladium was down 0.4 per cent at $672 an ounce.

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