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Gold steadies after weekly drop, EU summit eyed

Inflation fears helped gold stretch its winning run to an 11th year in 2011

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prices held steady above $1,571 per ounce on Monday after falling more than 3% last week, but a firm U.S. dollar and deflation worries triggered by a global economic slowdown were expected to keep a lid on gains.

Inflation fears helped gold stretch its winning run to an 11th year in 2011, but investors are now starting to worry about deflation after recent reports showed signs of slowing global economic activity, already dented by the debt crisis in Europe.

Physical dealers, who have seen limited buying interest in recent weeks, said a slowdown in the global economy could force jewellers, investors and speculators to tighten their purses.

Gold was steady at $1,571.59 an ounce by 0629 GMT after an early drop to around $1,567 spurred bargain buying from speculators, which sent prices to an intraday high around $1,576. Bullion has shed most of its early gains and is trading almost flat for the year.

"For the moment, I would say that without any market-moving news, gold will probably be rangebound. I see support at about $1,523 and the next resistance at $1,600," said Lynette Tan, Phillip Futures analyst Lynette Tan in Singapore.

"I think for the week ahead, people will still watch the EU summit for price direction of equities and gold."

Having once hoped this week's summit could be a turning point for the EU debt crisis, financial seemed to have toned down expectations of concrete progress. The key meeting will be missed by both Greece's new prime minister and finance minister due to illness.

Gold hit a lifetime high of about $1,920 in 2011, when investors turned to the metal as a safe haven during the debt crisis in Europe. But this year, declines in other markets have caused investors to sell gold for cash, sending prices to the lowest in more than four months at $1,527 in mid-May.

Bullish hedge funds and speculators modestly boosted their bullish bets on commodity prices for a second week, data showed on Friday, leaving them more exposed to biggest rout in raw material prices this year.

Managed money longs boosted their net longs in gold by 4,962 to 104,646 lots in the week up to June 19, the highest level since the first week of May.

In other markets, shares in Asia slipped on Monday and the dollar rose as concerns about faltering global growth and Europe's debt crisis curbed investor confidence.

In the physical market, premiums for gold bars were unchanged at 80 cents to the spot London prices in Singapore, although there were offers at 50 cents.

"There's not much movement here. It's also strange there's so much hype about the EU and the U.S., yet no-one has a clue what to do," said a dealer in Singapore.

Investors were frustrated by the U.S. Federal Reserve's decision last week to extend its "Operation Twist" programme aimed at lowering long-term interest rates instead of a new outright bond purchase scheme.

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