Gold prices eased in Europe on Wednesday, pressured by weakness in the euro and other commodities, as expectations faded that this week's European Union summit would do much to ease the euro zone debt crisis.
A move towards common euro-zone bonds at the summit, which had been seen as a potential solution to Europe's three-year-old debt crisis, appeared to have been ruled out after German Chancellor Angela Merkel said it would not happen as long as I live.
Spot gold was down 0.3 percent at $1,566.70 an ounce at 0741 EDT, while U.S. gold futures for August delivery were down $7.60 an ounce at $1,567.30.
Prices were expected to meet good support at $1,558 an ounce, analysts said, the low they fell to last week after the Federal Reserve disappointed gold bulls by failing to unveil another round of bullion-friendly quantitative easing.
Unfortunately we are in a situation when you get debate on debate (on Europe), but no real material change, Deutsche Bank analyst Daniel Brebner said.
We're in a bit of a period over the summer when we are going to see very little meaningful action by policymakers in three key regions - Europe, the U.S. and China - and I suspect we will have a continued deterioration in economic indicators. That means pressures in the gold market will continue to mount.
I don't think there's any kind of catalyst near term for a significant rebound in gold prices, he added. That said, I think we'll continue to see very steady buying by central banks, which have been in the market for the last couple of quarters or so. That should help gold prices from weakening too much.
Turkey, Russia, Kazakhstan and Ukraine were among the latest central banks to raise gold reserves, lifting their holdings by more than 25 tonnes between them in May, IMF data showed on Tuesday.
Elevated risk aversion which benefited the dollar and weighed on other assets like base metals and crude oil also pressured gold on Wednesday. The euro fell 0.1 percent against the U.S. unit. .EU
The metal has moved in line with 'risky' assets like oil and equities this year, and against the dollar, a perceived safe haven, reversing its previous pattern of responding positively to heightened fears over the euro zone crisis.
Bullion could still suffer from a relatively stronger U.S. currency, as gold's safe-haven appeal is failing to attract enough followers as players are going for the dollar or Treasuries, VTB Capital said in a note.
PHYSICAL DEMAND LANGUISHES
Gold demand languished in major consumer India as record-high local prices resulting from the weak rupee kept buyers on the sidelines, traders said, though premiums stayed steady in Hong Kong, Tokyo and Singapore.
Traders in India are also waiting for the monsoon to pick up, which could boost the income of farmers, who buy more than half of India's gold.
Data from three major Mints in Europe and North America showed on Tuesday that gold coin sales fell in the first quarter as the strong demand for small investment products that helped send gold to record highs in 2011 eased.
Holdings of gold-backed exchange-traded funds rose, however, to their highest since mid-March at 70.63 million ounces on Monday, according to Reuters data.
Lower silver prices also tempted some buyers back into the market. Holdings of the largest silver ETF, New York's iShares Silver Trust, are up more than 232 tonnes so far in June.
Spot silver was down 1 percent at $26.81 an ounce, tracking losses in gold. The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, held near its 20-month high at 58.3.
Investors are buying once more, with major physical ETF holdings up 2.2 percent from the early May trough, Standard Chartered said in a note. On a ratio basis vs. gold, silver is starting to look cheap.
Spot platinum was down 1.1 percent at $1,404.80 an ounce, while spot palladium was down 1.9 percent at $579.75 an ounce, having earlier touched a seven-month low at $575.88 an ounce.