Gold slips 1 percent on eurozone attempt to resolve debt crisis

Gold slipped 1 percent in volatile trade on Thursday after equities rose on optimism over tentative steps by European policy makers to resolve and limit the region’s debt crisis.

Gold’s failure to revisit recent highs also prompted investors to trim positions and turn their attention to a series of economic data from the United States ahead of next week’s meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) on interest rates.

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US gold futures lost 1 percent to hit a low around $1,806 an ounce, putting pressure on cash gold.

“We’ve seen in the last few days that gold has struggled to make any headway,” said Darren Heathcote, head of Investec Australia in Sydney. “That is a sign of the market really waiting for something more substantial, either coming out of Europe or coming out of the United States.”

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Spot gold fell $12.01 to $1,808.09 an ounce by 0607 GMT, extending losses from the previous session. Bullion, which has risen around 27 percent this year, was well below a lifetime high around $1,920 an ounce struck last week.

Asian stocks bounced on Thursday after euro zone policy makers stepped in to tackle a crippling debt crisis, but there were also fears about obstacles the bloc’s leaders face, which could weigh on the euro and Asian currencies in the medium term.

Sentiments remained volatile as documents revealed that European finance ministers have been warned confidentially of the danger of a renewed credit crunch as a “systemic” crisis in euro zone sovereign debt spills over to banks.

The uncertainties about global economic growth have driven gold prices to scale record highs since July, and are still expected to underpin sentiment for the metal until investors are convinced the danger of recession is past.

Debt problems in the European Union are raising the risk to a bullish outlook for commodities, Goldman Sachs economist Allison Nathan said on Thursday, reiterating a 12-month forecast for Brent at $130 per barrel, gold at $1,860 an ounce and LME copper at $11,000 a tonne.

World Bank President Robert Zoellick said on Wednesday the world had entered a new economic danger zone and Europe, Japan and the United States all needed to make hard decisions to avoid dragging down the global economy.

“I would say we’ll be watching the U.S. CPI figures ahead of the FOMC meeting next week. If we do see an acceleration in inflation, then I think additional Fed action or looser monetary policy will be more difficult to justify,” said a dealer in Singapore.

“I think gold will trade sideways this week. I am looking for support at $1,800. Gold is becoming a different creature because of the volatility. We never saw gold trading so volatile until prices rallied above $1,900.”

The Federal Reserve, facing rising global financial strains and recession fears, is poised to increase downward pressure on longer-term interest rates next week in a bid to speed up a sputtering US recovery.

In the energy market, oil fell as rising fuel stocks and falling demand in top consumer the United States reinforced fears that crumbling economic growth and Europe’s debt crisis would dent energy use.

Reuters