Gold and silver slumped to the lowest levels in four months as Greek leaders struggled to form a government, increasing concern Europe’s crisis will escalate and boosting the dollar. Palladium dropped for an eighth day.

Spot gold fell for a third day, declining as much as 1.1 percent to $1,587.28 an ounce, the lowest price since Jan. 3. The metal was at $1,595.45 at 2:21 p.m. in Singapore, having pared gains this year to 2 percent. The euro tumbled for an eighth day against the dollar in the worst run since 2008.

Alexis Tsipras of Greece’s Syriza party, who holds the mandate to form an administration after May 6 elections, said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, who leads the Pasok party, to revoke written pledges to implement austerity measures by the time he meets them today to discuss an alliance. Both rejected the request.

There are “growing concerns that a new Greek government could break pledges made by the previous regime on austerity,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd. (ANZ) “Momentum from Tuesday might be enough to carry prices lower, especially if France and Greece ramp up the rhetoric against current euro-zone policy.”

The risk of Greece leaving the euro by the end of 2013 has risen to as high as 75 percent, Citigroup Inc. said on May 7. Tsipras said he aimed to link up with parties in a government that would cancel the bailout and nationalize banks.

In France, Socialist Francois Hollande, who’s pushing for reduced cutbacks, was elected president at the weekend, underscoring voters’ rejection of the austerity measures that have underpinned the region’s efforts to combat the crisis.

June-delivery bullion lost as much as 1.1 percent to $1,587.40 an ounce, and was last at $1,594.40 on the Comex in New York. Gold of 99.99 percent purity fell as much as 2.4 percent to a four-month low of 324.50 yuan a gram ($1,599.11 an ounce) on the Shanghai Gold Exchange.

Cash palladium, this year’s worst-performing precious metal, slumped as much as 1 percent to $615.68 an ounce, the lowest price since Jan. 10 and was last at $619.25. The eight- day drop is the worst losing run since September 2008.

Spot silver declined for a third day, losing as much as 1.8 percent to $28.9225 an ounce, the cheapest since Jan. 9, before trading at $29.1550.

Platinum fell for a second day, dropping as much as 0.7 percent to $1,501.50 an ounce, equaling yesterday’s low, which was the cheapest since Jan. 17.

[Bloomberg]