Gold held near $1,600 an ounce on Thursday as caution over the outlook for the European debt crisis lingered after draft proposals from an emergency EU summit in Brussels were reported, and as concerns persisted over talks to lift the US debt ceiling.
The draft conclusions from the summit suggested the eurozone bailout fund, the EFSF, will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities. Signs that eurozone officials were nearing a deal to bail out Greece knocked gold to a session low of $1,592.69 on speculation the precious metal would lose its appeal as a haven from risk. Prices quickly bounced back, however.
"There are a lot of unsolved issues for the time being, and gold reacted really marginally after the draft EU summit conclusions. There was no real profit taking," said Bayram Dincer, an analyst at LGT Capital Management.
"There is no shift in risk perceptions, which is really important for gold market participants."
Spot gold was flat at $1,600.09 an ounce at 1345 GMT, and is up 12.8 percent so far this year. US gold futures for August delivery were up $3.90 an ounce at $1,600.80. The metal hit a record $1,609.51 an ounce on Tuesday on fears the eurozone debt crisis that has battered Greece would spread to larger economies like Spain and Italy, but later retreated as some cautious optimism emerged.
The euro recouped ground on Thursday after the draft conclusions emerged, and extended gains against the dollar after US data showed new claims for unemployment benefits rose more than expected last week.
But some market players were unnerved by the prospect of any deal on the eurozone including a short-term default.
The draft summit conclusions seen by Reuters said loans from the European Financial Stability Facility will be extended from 7.5 years to at least 15 years and the interest rate will be lowered from around 4.5 percent currently, in the case of Greece and Portugal, to around 3.5 percent.
European shares extended gains after the draft document showed plans for a wide-ranging response to the debt crisis.
Among other commodities, oil prices fell as weak economic data from China, the world's second-biggest oil user, outweighed support from market expectations that the sovereign debt crises on both sides of the Atlantic could somehow be contained.
Meanwhile, President Barack Obama and top lawmakers face growing pressure on Thursday to strike a deficit-reduction deal. They have struggled to break their impasse as an August 2 deadline looms for raising the government's $14.3 trillion debt ceiling. A failure to do so could render the world's biggest economy unable to pay its bills, potentially reducing the safe-haven appeal of US Treasuries and the dollar, and lifting gold.
Spot silver eased 0.3 percent to $39.95 an ounce.
The gold-silver ratio, used to measure the ounces of silver needed to buy one ounce of gold, held near 40, well below the average of 55 since the beginning of 2010 but above the April lows near 30 when silver rose close to $50.
Demand for products like silver-backed exchange-traded funds remained choppy, with the largest, New York's iShares Silver Trust, recording its largest one-day outflow in a month on Wednesday, with its holdings falling 60.6 tonnes. Spot platinum was bid at $1,782.49 an ounce versus $1,772.26, while spot palladium was at $802.47 an ounce against $792.22.
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