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Gold, dollar drop as risk appetite returns

Gold prices and the dollar fell on Monday as investors jumped back into riskier assets like stocks.

Investors were relieved that European leaders agreed over the weekend to create a $1 trillion rescue fund to support debt-burdened countries such as Greece, Spain and Portugal. The package is meant to reassure markets and stabilize the euro, which bounced back from a 14-month low against the dollar that it hit on Friday.

Oil prices also rebounded. Light sweet crude for June delivery rose $1.69 to settle at $76.80 a barrel. It was as high as $87.15 a week ago.

Gold futures for June delivery fell $9.60 to settle at $1200.80 an ounce on the New York Mercantile Exchange. Gold had been down $16 at the market open. As investors erred on the side of safety and caution, gold pared those losses later in the day. Investors often seek safety in gold, because the metal tends to hold its value in uncertain times.

Despite the relief investors showed on Monday, the huge size of the European aid package could lead to inflationary pressures later, said George Gero, vice president at RBC Global Futures said. That could lead to future demand for safe assets like gold. It's also not clear whether how much help other European countries besides Greece may need.

"We're not out of the woods yet because we still don't know how much it will cost for Portugal, Spain and Ireland," Gero said.

Credit rating agency Moody's rattled markets recently by warning that banks in Portugal, Italy, Spain, Ireland and Britain could all be hurt by a widening debt crisis.

Investors have been worrying that Europe's debt crisis could spread to other EU countries. That would threaten the global economic recovery and the stability of the euro, which is shared by 16 EU nations including Greece.

Monday, though, investors focused solidly on the good news coming out of Europe.

The dollar fell, and the euro rose. The ICE Futures US dollar index, which measures the dollar against six other currencies, fell 0.36 percent. The weaker dollar makes commodities a better deal for foreign investors since most commodities are priced in dollars.

Silver, platinum and palladium advanced. Silver for July delivery rose 10.1 cents to settle at $18.552 an ounce. Platinum for July delivery rose $27.70 to settle at $1,693.50 an ounce; palladium for June delivery rose $14.30 to settle at $524.50 an ounce. All trade on Nymex.

Copper for July delivery rose 8.35 cents to settle at $3.2280 a pound.

Grains and beans were mixed. Wheat for July delivery fell 17.75 cents to $4.9275 a bushel; corn for July delivery fell 1.5 cents to $3.7050 a bushel; soybeans for July delivery rose 1 cent to settle at $9.61 a bushel.

In other Nymex trading in June contracts, heating oil rose 4.07 cents to settle at $2.1202 a gallon, and gasoline added 4.75 cents to settle at $2.1726 a gallon. Natural gas gained 15.5 cents to settle at $4.170 per 1,000 cubic feet.