Gold fell yesterday after a sharp sell-off in the silver market, but still remained within sight of three-week highs, supported by investors seeking perceived havens from the worsening Eurozone debt crisis. Europe's policy options to avert a Greek debt default appeared to be dwindling, sparking fears of a chain reaction affecting other heavily indebted countries in the 17-nation currency bloc. The euro rose to one-week highs against the dollar after a report that China was interested in buying "bailout bonds" for Portugal, although ongoing concern about the lasting impact of the crisis pulled the currency down from session highs. This in turn helped the dollar pare gains and stripped as much as 4 per cent off the silver price, denting gold. Recovering Spot silver fell to a low of $36.30 (Dh133) an ounce before recovering to trade down 2.8 per cent at $36.83, while spot gold was down 0.4 per cent at $1,517.70 an ounce, after hitting $1,532.00 on Wednesday, its strongest since May 4. "This is a major intraday reversal of some 8 per cent, the potential right now is that we see one step forward and two steps back in silver and I think it can continue," said Commerzbank analyst Eugen Weinberg. "The real problem is the price increase before was overdone and the market was overheated... speculative investors have not yet exited [their positions]," he said, adding: "This is a situation where the tail is wagging the dog." Euro-denominated gold slid by about 1 per cent on the day but still held near a record just above €1,088 (Dh5,660) an ounce struck on Wednesday, while dollar-priced gold was expected to maintain more stability. "We are in for a prolonged period of prices treading water and probably stagnating at around $1,500. I wouldn't be looking for as much positive dynamic going on, despite the demand for it as a safe-haven right now being fuelled by the debt crisis," Commerzbank's Weinberg added. Silver touched a record at $49.51 in late April before falling sharply on a broad sell-off in commodities and after exchange operators in Shanghai and New York raised the amount of money required to trade silver futures. Volatility The CME Group may bring down margins over time once the market volatility eases, Harriet Hunnable, CME managing director for metals products, told Reuters in a phone interview. CME, operator of the world's leading energy, grain and precious metal markets, hiked trading margins for silver five times over a two-week period up to May 9 by a total of about 84 per cent. "We still think that concerns about the ability of the EU to manage Greece's sovereign debt problems and potential contagion to other peripheral countries will be supportive for gold," said Natalie Robertson, commodities strategist at ANZ.