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Gold edges lower as dollar firms ahead of EU summit

Gold prices edged lower in Europe on Monday, extending last week’s sharp correction as the dollar firmed, but moves were muted ahead of a European Union summit later in the week and further economic data from the United States.

Spot gold was down 0.3 percent at $1,566.09 an ounce at 1008 GMT, while US gold futures for August delivery were up 60 cents an ounce at $1,567.50.

The metal ended the last session in its worst weekly performance since May, down 3.5 percent after the US authorities disappointed gold bulls by failing to launch more aggressive monetary policy measures, like quantitative easing.

Further easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, and weigh on the dollar. Investors are still waiting to see whether poor US data will yet force the Fed to act.

“The broader picture suggests gold could move a bit lower, but it will stay in this range until we see definitively whether the bulls will be right about the printing presses at central banks ramping up again, or whether they will hold fire until the world gets a lot worse,” Macquarie analyst Hayden Atkins

European leaders will discuss specific steps towards a cross-border banking union, closer fiscal integration and the possibility of a debt redemption fund, according to a document prepared for the meeting.

But muted expectations for the summit, together with concerns over global economic growth, prompted investors to scale back exposure to riskier assets on Monday.

Support holds

From a technical perspective, chart support held for gold around the $1,560 an ounce level last week. Below that, support around the metal’s May low below $1,530 is expected to cushion any fall.

“We prefer to buy dips in gold and expect the range lows near $1,520 to underpin a move back toward the $1,640 area,” Barclays Capital said in a note.

Analysts say a break of the $1,640 June high will be needed to re-establish an uptrend.

On the physical markets, a recovery in the rupee from last week’s record lows versus the dollar, which pushed up local gold prices, failed to stimulate fresh buying in major consumer India. Traders said they are awaiting further price correction.

Among other precious metals, silver was down 0.5 percent at $26.68 an ounce, tracking losses in gold.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, rose to its highest since Oct. 2010 on Monday at 58.6 as the grey metal underperformed.

Spot platinum was up 0.3 percent at $1,431.17 an ounce, while spot palladium was up 0.3 percent at $605.75 an ounce.

Given economic problems in the United States and euro zone, “we believe the immediate upside for prices of platinum group metals is limited”, Bank of America Merrill Lynch said in a note.