European Union leaders will meet later in the day to seek a convincing solution to Greece's debt crisis. Failure to reach agreement could cause economic damage to the global economy, the head of the European Commission warned.

The gold market is likely to wait for direction as investors watch for the outcome of the meeting, as well as progress in the US deficit talks.

"A positive resolution to either the Greek debt problem or a deal by US lawmakers, or both, will likely undermine gold, targeting $1,550 and $1,500 in the short term," said a Singapore-based trader.

"A failure will push gold back into overdrive with upside technical targets around $1,640-$1,650 and then $1,700."

Spot gold was nearly flat at $1,601.09 an ounce by 0601 GMT, after rising nearly 0.8 percent in the previous session. Gold hit a record of $1,609.51 on July 19.

US gold gained 0.3 percent to $1,601.80.

Technical analysis suggested that gold could fall to the range of $1,565 and $1,575 in the short term, said Reuters market analyst Wang Tao.

Although short-term risk could weigh on prices, gold's outlook remains bullish in the longer term, as the euro zone debt crisis is unlikely to end soon and the United States still has plenty to tackle even if a short-term debt agreement is reached.

"Even if they have a short-term deal, they still have so many things to do before a long-term agreement," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong.

"People are looking at $1,610 as the next target, after gold finishes this round of consolidation and resumes the uptrend."

Spot silver inched down 0.1 percent to $40.04 an ounce, hovering below a 2-1/2 month high of $40.84 hit on July 19.

The gold-silver ratio, used to measure the ounces of silver needed to buy one ounce of gold, stood at 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.

Copyright Reuters, 2011