Gold hovers near record high, euro zone eyed

SINGAPORE: Spot gold was flat on Wednesday, holding on to its 5-percent gain of the past seven sessions and hovering near its record high as growing fears of a euro zone debt contagion burnished its safe-haven appeal.

European Union leaders are poised to hold an emergency summit after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and to stop contagion spreading to Italy and Spain.

"Investors are really fearful that the debt crisis will spread to nations beyond Greece," said Ong Yi Ling, an analyst at Phillip Futures.

"We are in the climate of uncertainty -- there is the debt crisis in Europe and the United States have not come to an agreement on raising the debt ceiling while the August 2 deadline is approaching -- these will keep gold prices supported."

Spot gold was flat at $1,565.81 an ounce by 0617 GMT, after hitting $1,572.96 in the previous session, barely $3 off the all-time high of $1,575.79 set on May 2.

US gold edged up 0.3 percent to $1,566.60.

Technical analysis suggested signals for spot gold were mixed, with the focus now on a resistance zone of $1,575.79-$1,579, Reuters market analyst Wang Tao said.

"I can't see any reason for gold to stop being bullish," said a Singapore-based trader. "Bullish and bearish economic conditions both lead to plausible argument to buy gold."

"The main risk in the short term is that it might dip as part of the commodities basket."

Oil prices drifted lower after a surprise gain in US crude inventories and as concerns on Europe's fiscal conditions weighed. Industrial metals and agricultural commodities held steady.

Suggesting a return of investment appetite, holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped 1.7 percent to 1,225.41 tonnes by July 12, their highest in more than two months.

Investors will watch Italy's bond auctions later in the week after yields on Spanish and Italian government bonds hit highest levels in 14 years on Tuesday, reflecting nervousness among investors about these country's fiscal conditions.

"If investors think the crisis will spread further and we see bond yields hit another record high, gold could do pretty well," said Ong of Phillip Futures.

Spot silver gained 0.4 percent to $36.21 an ounce, recovering from a one-week low of $34.76 hit in the previous session. US silver rose 1.7 percent to $36.25.

Copyright Reuters, 2011