SINGAPORE: Gold edged up on Thursday after the euro showed some resilience ahead of a European Union summit that is unlikely to deliver new measures to tackle the region's debt crisis and may prompt investors to turn to the safety of the US dollar.
Gold has lost some of its safe-haven appeal after financial market turmoil caused by the prolonged debt crisis in Europe and the US Federal Reserve's decision to take only a modest step to boost the economy forced investors to cash in bullion to cover losses.
Wall Street investment bank Morgan Stanley on Thursday lowered its precious metals price forecasts for 2012 through 2014, saying the move was in line with the bank's cut in its global commodity price forecasts.
Gold added $2.45 an ounce to $1,576.85 by 0602 GMT, having briefly risen above $1,581 on Wednesday on bargain hunting. The metal is on track for a more than 5 per cent drop this quarter.
“I don't expect too much coming out (of the summit). It's still a long way to go. I don't think it's easy to solve,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that there was a possibility Greece would eventually leave the euro zone.
“I think people are still buying the US dollar because I think gold is fluctuating. I think the US dollar is still more popular for the time being.”
European Union leaders remain unusually divided ahead of a two-day summit that begins on Thursday over how to stem the bloc's spreading debt crisis, now in its third year since it began in Greece.
US gold for August delivery was hardly changed at $1,577.50 an ounce in thin trading.
Shares in Asia rose on Thursday on stronger-than-expected US durable goods orders data and the euro was steady ahead of the EU summit, although it was still within easy reach of this week's trough around $1.2441.
German Chancellor Angela Merkel will pit herself against France and Italy on Thursday at the summit that could shape the euro zone's future, insisting they must put the bloc's fundamental problems ahead of pleas for emergency action.
Gold touched a record of about $1,920 an ounce in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe. But this year, it has tended to move in tandem with riskier assets such as oil and equities, falling to its lowest in more than four months at $1,527 in mid-May.
“These reforms and relief efforts for troubled governments are doomed to fail, and it would be better for these states to radically restructure sovereign debt now and exit the euro,” said Peter Morici, an economist at the University of Maryland.
“Continuing the charade that their situations can be saved will only make the pain worse later.”
The physical market was deserted ahead of the summit, with premiums for gold bars in Singapore unchanged at between 50 and 70 US cents an ounce to spot London prices, and 70 cents and $1 in Hong Kong.
Weaker local currencies are weighing on gold demand from India, the world's largest consumer of the precious metal, and Indonesia, another leading Asian buyer, as traders also favour cash on concerns over deterioration in the euro zone crisis.