Gold eased on Wednesday, retreating further from the previous day's record high, as hopes for a positive outcome to Thursday's euro zone summit and signs that talks on raising the US debt ceiling were progressing took some heat out of prices.
Spot gold eased 0.1% to USD 1,586.01 an ounce at 1343 GMT, although prices are still up 11.4% this year. US gold futures for August delivery were down USD $13.50 an ounce at USD 1,587.60.
Concerns over euro zone debt, coupled with a looming debt crisis in the United States, led to an 11-session rally in gold prices to Monday, its longest in four decades, which took it to a record USD 1,609.51 an ounce.
"Market uncertainty relating to sovereign issues and the increase of the US debt ceiling is supporting safe haven demand for gold," said BNP Paribas analyst Anne-Laure Tremblay.
"While we remain positive on gold over the medium term, positive developments in tomorrow EU's summit may trigger a short-term correction in the price."
The euro rose against the dollar as investors remained relatively optimistic that some kind of deal will be reached. European shares also rose.
Newswire reports that the EU was said to be considering enabling the euro zone bailout fund to recapitalise the banks and let the EFSF buy bonds in the secondary market boosted the single currency.
Among other commodities, oil prices climbed more than USD 1 a barrel, bolstered by the optimism for a US debt deal and by tightening crude stocks in the world's largest oil consumer.
On the debt markets, German government bonds fell on and yields on bonds of the euro zone's debt-troubled issuers eased on optimism leaders were moving towards a solution to the regional crisis.
Under pressure
Gold also remained under pressure after some concerns eased over the threat of a US default.
It fell nearly 1% in half an hour late on Tuesday after President Barack Obama threw his support behind efforts by a bipartisan group of senators to negotiate a new deficit-reduction plan aimed at averting a US debt default.
"The preliminary (talks) on the US debt ceiling looks promising and clearly that has taken some risk off the table in terms of appetite for gold," said Robin Bhar, an analyst at Credit Agricole.
"But we are certainly not out of the woods yet. There could be some hiccups along the way. Gold will get support. This is a healthy correction within the overall uptrend."
Gold buying in Asia, home of major gold consumers India and China, picked up as price-sensitive buyers returned to the market after prices eased from record highs.
Interest in precious metals backed exchange-traded funds abated slightly after last week's revival. Holdings in the SPDR Gold Trust , the world's largest gold ETF, eased by 3.332 tonnes to 1,246.011 tonnes on July 19, after rising for two days with a total inflow of 23.933 tonnes.
The iShares Silver Trust, the world's biggest silver ETF, reported a near 2% jump in its holdings, to a one-month high of 9,864.33 tonnes on July 19.
The gold:silver ratio -- the numbers of ounces of silver needed to buy an ounce of gold -- recovered from a two-month low as gold and silver prices eased, with the more illiquid grey metal under performing gold in a falling market, as usual.
Silver was bid at USD 38.47 an ounce against USD 38.96. Spot platinum was bid at USD 1,762.49 an ounce versus USD 1,762.49, while spot palladium was at USD 787.22 an ounce against USD 785.40.
