LONDON - U.S. dollar gold prices hovered around $1600 an ounce Thursday morning London time - 0.6% off Tuesday's all-time high - as stocks and commodities dropped ahead of the European Union's latest emergency summit on Greece. Silver prices traded in a tight range around $39.90 per ounce - 1.6% up for the week so far. "It seems unlikely that any real resolution can be found to [the Greek] issue on this occasion," says Swiss gold bullion refiner MKS. "Sovereign debt concerns in the Eurozone and US should continue to dominate precious metals, with uncertainty keeping investors interested in the safe-haven advantages of the complex," agrees Marc Ground, commodities strategist at Standard Bank. Euro gold bullion price whipped violently this morning - hitting €1131 per ounce as European Union leaders were arriving at the emergency meeting in Brussels, before falling 1.2% to €1117 around lunchtime. France and Germany have agreed a common position - after speaking on Wednesday with European Central Bank president Jean-Claude Trichet - press reports said, with the details to be unveiled at the meeting. The Financial Times suggested that the joint proposal could include €71 billion in loans and €50 billion raised from a Eurozone bank tax. The bank tax proceeds could then be used to buy back around 20% of Greece's €350 billion of outstanding debt. However, "I don't think there will be an agreement on that," said Jean-Claude Juncker, chairman of the Eurozone finance ministers, adding that selective default by Greece could not be ruled out. The Wall Street Journal, meantime reported that a deal could involve inviting creditors to exchange their bonds for new 30-Year bonds. Trichet has previously said the ECB will not accept defaulted bonds as collateral - while Germany has pushed for private creditors to take losses as part of a new rescue deal. "A haircut of around 50% of outstanding bonds should be targeted," Germany's council of independent economic advisors said Tuesday. "There [also] needs to be a joint guarantee for all outstanding [Eurozone] debt," Peter Bofinger, one of the Council's members, said Thursday, warning of "the abyss of a major speculative attack on Italy." "[But] the consequences of this [Eurobond] policy will strangle Germany," said former ECB chief economist and Bundesbank board member Otmar Issing earlier this week, and anyone promoting it "will prove to be the Euro's gravediggers." "With expectations for the [Brussels] meeting low, any positive outcome today would be gold-negative," says Edel Tully, precious metals strategist at UBS. "But unless EU leaders come up with a credible plan that addresses not only Greece but also the threat of contagion to Italy and Spain as well, any dip in gold will likely be short-lived." Data published Thursday showed signs of a slowdown in Eurozone economic activity. Germany's composite purchasing manager's index fell from 56.3 last month to 52.2 - its largest one-month fall since the end of 2008, and "a bit of a worry," says Commerzbank economist Peter Dixon. "The resolution to the crisis is going to be heavily dependent on a strong Germany." Across the Atlantic meantime US President Obama may be open to a short-term deal, said the White House, on raising the $14.3 trillion debt ceiling as a way of buying time for something bigger. The US Federal Reserve however is actively planning for a US default, news agency Reuters said on Thursday. A default on US Treasury bonds could occur if the ceiling is not raised by August 2 - the date on which the Treasury expects to hit it. "We are in contingency planning mode," Philadelphia Fed president Charles Plosser told Reuters. Plosser notes that a US default would raise questions over the Fed's lending to banks - which post US Treasury bonds as collateral. "Do we treat them as if they didn't default, in which case we would be saying we are pretending it never happened? Or do we treat them as if they defaulted and don't lend against them?" Over in China, the world's second-largest gold bullion market, HSBC's preliminary PMI fell from 50.1 last month to 48.9 - its lowest level since March 2009. "We think the weak reading reflects seasonal factors as industrial activities tend to slow in the summer," says a note from Barclays Capital. BarCap also notes that the figure may be due to policy tightening earlier in the year.

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