Gold steady on light buying, Europe debt fears

SINGAPORE: Gold held steady on Wednesday, as light buying in Asia trickled in after prices pulled back from a record high and persistent concerns on euro zone's debt crisis supported sentiment.

Gold retreated from a record high of $1,609.51 after a group of US senators offered an ambitious plan that could revive stalled debt talks and the prospect of a long-term deficit reduction deal to avert a default.

On the other side of the Atlantic, worries about debt crisis remained as German Chancellor Angela Merkel doused expectations of any comprehensive solution to Greece's debt crisis at an emergency euro zone summit on Thursday, saying "further steps will be necessary and not just one spectacular event which solves everything."

Physical dealers and traders reported light buying in the Asian market, as investors with bullish longer term views take advantage of price drops to stock up gold.

Spot gold edged up 75 cents to $1,588.60 an ounce by 0606 GMT, off the record high set in the previous session.

US gold fell 0.8 percent to $1,589.

The pullback came after gold rallied for 11 straight sessions, and the market became stretched. The Relative Strength Index on spot gold rose to as high as 73.6 on Monday, seen in the overbought territory.

"Some investors liquidated their positions after US debt talks showed some progress," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

Fung expected gold to remain well supported at the $1,570 to $1,580 level in the short term.

"The market is still looking bullish, and by end of the year we may see prices rise to $1,800 or $1,900."

Technical analysis provided a bearish picture for the short term, expecting gold to fall into the range of $1,565 to $1,575, said Wang Tao, Reuters market analyst.

Wang, however, expects gold to rise to $1,940 an ounce by the end of the year.

Uncertainties around sovereign debt in both Europe and the United States, as well as global economic growth in the second half of the year, are likely to remain supportive of gold.

"The favourable backdrop has boosted prices despite the seasonal weakness in demand, and we expect prices to test fresh highs amid the current environment," said Barclays Capital in a research note.

Holdings in the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, lost 3.332 tonnes to 1,246.011 tonnes by July 19, after rising for two days with a total inflow of 23.933 tonnes.

IShares Silver Trust , the world's biggest silver ETF, reported a nearly 2-percent jump in its holdings, at a one-month high of 9,864.33 tonnes by July 19.

Spot silver gained 0.3 percent to $39.07, after dropping nearly 4 percent in the previous session. US silver fell 2.8 percent to $39.11.

The Hong Kong Mercantile Exchange plans to launch a dollar-priced silver futures contract on July 22, to tap into growing interest from Chinese investors in the star performer in the precious metals complex so far this year.

Spot silver has risen 27 percent so far this year, compared with a 12-percent rise in gold, an almost steady platinum and a 1.3 percent fall in palladium.

But appeal of the product might be limited, as traders in Asia can trade COMEX silver futures on an electronic platform nearly 24 hours a day, traders said.

Copyright Reuters, 2011