Gold Prices Fall as Investors Brace for Results of Greek Default

Gold prices fell as panicking investors Tuesday prepared for results of a Greek default -- damage to European banks and falling business activity on the continent and perhaps the U.S. -- by dumping stocks, abandoning the euro and buying dollars.

Efforts to get Athens to cut its budget deficits have failed to meet targets set up as requirements for bailout money, leaving default as the increasingly likely outcome.

European leaders' focus has shifted from helping Greece cut its budget to saving banks holding Greek government bonds. Fiscal and monetary authorities are now debating how much of a loss bank shareholders should absorb once Athens gives up trying to qualify for more bailout money and defaults.

The failure of European politicians to deal with the region's debt problems means that another financial crisis is no longer the tail risk event it seemed to be just a few weeks ago, and the risks of a global recession are growing, said Kevin Norrish of Barclays Capital in a note.

He added that such a failure would certainly result in a second major financial crisis and global recession.

Overnight, Goldman Sachs chopped its GDP forecast for developed economies for 2012 to 1.3 percent from 2.1 percent.

The main driver of our shift in views has been the escalation of bank funding stress in the Euro area, alongside deeper public budget cuts in a number of European countries, the investment bank said in a client note.

World stocks hit levels not seen since 2010: European equities were in collapse mode, plunging more than 3 percent; Asian stocks posted equally grim declines; U.S. stock futures indicated a bid drop once the opening bell tolls.

The dollar hit a nine-month high, and the euro dropped to a nine-month low.

Gold was down but only modestly. On the Comex gold for December delivery rose $3.90 to $1,661.60, while gold for immediate delivery slipped $5.90 to $1,645.03.

Silver for December delivery fell 48 cents to $30.32, while silver for immediate delivery declined 54 cents to $30.20.