Gold prices turned lower on Tuesday, surrendering early gains as it was caught up in hefty losses across the financial markets due to heightened concerns over the prospect of a Greek default.

U.S. stocks dropped around 2 percent and European shares by 3.2 percent, while oil slid by more than $2 a barrel and industrial metals such as copper and nickel fell on growing fears the euro zone sovereign debt crisis could spread to banks.

Spot gold was down 0.7 percent at $1,645.90 an ounce at 1413 GMT, having earlier risen as high as $1,678 an ounce.

Investors remained wary toward gold after it was caught up in a financial market rout in late September, which led to heavy selling of the metal to cover losses elsewhere. Prices fell 20 percent from a record $1,920.30 hit early in the month.

Against a sea of red, (gold) probably will continue to struggle as its safe-haven (appeal) has been somewhat put into question over the last month, said Saxo Bank senior manager Ole Hansen.

Further losses on the S&P, which are now likely considering how we are testing recent lows, could trigger additional long liquidation of profitable positions, he added.

Gold has done pretty well considering the continued dollar strength, he added. But it is probably also clear that following a $300 dollar correction, many are a bit hesitant jumping back in.

European shares took a hit on Tuesday on fears Franco-Belgian bank Dexia may need to be rescued due to its exposure to Greek debt. Investors fear this is evidence that banks will be hit hard by the euro zone debt crisis.

European finance ministers are considering making banks take bigger losses on Greek debt and have postponed a vital aid payment to Athens until mid-November. The STOXX Europe 600 Banking Index is down nearly 5 percent.

Despite putting in its weakest performance in nearly three years in September, gold still managed to deliver its biggest quarterly gain of 2011 in the third quarter and is up more than 15 percent so far this year.

This is even after some gains in the dollar, which has inched up 1.1 percent this year versus the euro. Gold is usually pressured by a stronger dollar, which makes it more expensive for other currency holders.

U.S. gold futures for December delivery were down $11.50 an ounce at $1,646.40.

DRIVEN BY RATES

Goldman Sachs reiterated its 12-month gold price target of $1,860 an ounce, while cutting its 2012 forecasts for oil and copper prices.

As we expect gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates, and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions, it said.

Credit Suisse also raised its 2012 gold price forecast to $1,850 an ounce, saying the metal, as a clear beneficiary of the uncertainty and dislocations in financial markets, has further upside with the crises set to continue.

Silver was down 0.7 percent at $30.14 an ounce. Platinum was down 1.6 percent at $1,473.99 an ounce, while palladium was down 0.2 percent at $578.97.

Platinum widened its discount to gold to nearly $200 an ounce in earlier trade, an unprecedented level, while the gold: platinum ratio -- the number of platinum ounces needed to buy an ounce of gold -- rose to 1.13, its highest since Reuters data began.

Platinum prices were hurt by a 29 percent hike in CME Group trading margins on platinum futures, as the biggest operator of U.S. futures exchanges moved to tame market volatility.

Major automakers posted double-digit percentage U.S. sales gains for September ... (but) September car sales in Italy and France were weak, offsetting gains in Germany, said HSBC.

More than half of annual platinum and palladium demand is from the auto sector, where it is a necessary component in the production of catalytic converters and particulate filters.

Gold Gold prices Credit Suisse Copper