Gold tests $1,600 but Europe anxiety weighs

SINGAPORE: Spot gold struggled to breach $1,600 an ounce on Tuesday, as investors remained nervous over the progress of a solution to the euro zone debt crisis, while a firmer dollar may cap gains in bullion.

Asian stocks and the euro held steady, but sentiment remained fragile on concerns that efforts to contain the euro zone debt crisis were faltering and tougher rules to strengthen banks' capital would further undermine their profits.

Euro zone ministers agreed on Monday to boost IMF resources by 150 billion euros to ward off the debt crisis and won support for more funds from EU allies, but it was unclear if the bloc would reach its 200 billion euro target after Britain bowed out.

"The market is very choppy due to thin volume," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. "The focus of the market is still Europe."

The European Central Bank said the risks to financial stability in the euro zone had increased considerably in the second half of this year, but a break-up of the single currency bloc was unthinkable.

There was light buying on the physical market, but most market participants have moved to the sidelines of the market ahead of the year-end, he added.

Spot gold edged up 0.2 percent to $1,596.65 an ounce by 0300 GMT, after piercing above $1,600 briefly earlier in the day. US gold inched up 0.1 percent to $1,599.

GOLD BAR PREMIUMS RISE ON REDUCED SUPPLY

Premiums in Asia's gold hubs increased mainly in anticipation of reduced supply during the holidays, dealers said.

Last week's price drop to around $1,560, its lowest in nearly three months, prompted buying interest from Asia, helping push up the premiums.

In Hong Kong, gold bar premiums increased to $2 to $2.50 an ounce over spot prices, from 50 cents to $1.50 a week earlier, dealers said.

"Refineries in the west will be closed and no more stocks will arrive, which is driving up the premiums," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers.

Spot palladium led the precious metals complex with a 1 percent rise, to $610.

Spot platinum edged up 0.3 percent to $1,410. The Relative Strength Index just climbed above 30, after wallowing below the that mark in the oversold territory for a week.