By Frank Tang
NEW YORK (Reuters) - Gold fell around 1.5 percent on Tuesday as jittery commodities investors sold across the board on news of another U.S. futures brokerage was missing client funds.
Bullion's drop quickened pace in late New York trade after PFGBest on Monday told customers their accounts had been frozen. An U.S. industry body said about $220 million in customer funds were not in the brokerage's bank accounts.
U.S. investment bank Jefferies Group said on Tuesday it has started to liquidate trading positions of PFGBest.
The selling erased an early one-percent rally that occurred amid optimism for a European Union aid package for Spain. EU ministers agreed to provide aid to ailing Spanish lenders. They set a maximum of 100 billion euros ($123 billion) of which some 30 billion euros would be available by the end of July if there was an urgent need.
"With the 100 billion euro being made available to Spanish banks, gold should not be lower," said George Nickas, commodities broker at INTL FCStone.
"If Jefferies is doing an orderly liquidation, you have to believe that there have to be some concerns about 'Do I let the positions go?' You've got a higher degree of emotions now in a quiet market," Nickas said.
Spot gold dropped 1.3 percent to $1,565.90 an ounce on the day by 3:25 p.m. EDT (1925 GMT), having hit a session high of $1,600.90 earlier in the day.
U.S. COMEX August gold futures settled down $9.30 at $1,579.80 an ounce. Trading volume was one of the busiest in recent days, even though it was still 15 percent below its 30-day average, preliminary Reuters data showed.
Also weighing on gold were sharp losses in equities (.DJI) and a more than 1 percent decline in the RJ/CRB commodities index .CRB as investors shed riskier assets due to the PFGBest news.
"Gold was weighed down by liquidation across different sectors as metals, energy and equities are all significantly lower," said Phillip Streible, senior commodities broker at futures brokerage R.J. O'Brien.
Streible said that previous sell-offs suggested that gold will come into play as a valued asset when prices fell toward $1,550 an ounce, where investors are likely to add to their bullish positions.
INVESTMENT BUYING WEAK
Investment demand in gold remained lackluster despite the metal's recent price decline.
Holdings of gold in exchange-traded products declined by the largest one-day amount since late May, reflecting some of the investor wariness towards bullion.
Gold holdings in the world's eight major ETPs fell by 116,427 ounces by the close on Monday to 70.529 million ounces, driven by an outflow of this size from the SPDR Gold Trust, the largest ETP.
In other precious metals, silver fell 2.1 percent to $26.77 an ounce. Platinum was down 1.6 percent at $1,416.53 an ounce and palladium dropped 1.5 percent to $570.13.
(Additional reporting by Amanda Cooper in London; Editing by Bob Burgdorfer and Marguerita Choy)