Gold dropped on Wednesday early trading as investors remained worried that today’s informal EU summit would not come out with solutions to ease debt crisis amid possible frictions among European leaders.
The main spotlight today will be on the EU summit that will tackle euro area fiscal problems, where probably the meeting would show disagreement between Germany and France over introducing Eurobonds.
German Chancellor Angela Merkel said on Monday she will not be shy to reject Hollande`s idea of introducing Eurobonds to continue its rejection to the common bonds idea which is also favored by Italy, Belgium, Luxembourg and peripheral countries.
Thus, with the debt crisis intensifying gold is predicted to face more downside pressure after losing its safe-have characteristic for the dollar.
Yesterday, the OECD lowered its growth forecasts to 0.1% contraction this year from November’s forecasts of 0.2% growth and 0.9% expansion in 2013 from prior forecast of 1.4% expansion.
Additionally, OECD said debt crisis is intensifying and “may materialize and spill over outside the euro area with very serious consequences for the global economy.”
In the FX market, the dollar touched 20-month high against a basket of major currencies, where the dollar index hit a high of 81.83 after opening today’s trades at 81.63, putting more pressure on commodities.
On the physical side, the drop in the Indian rupee against the dollar made gold more expensive in the world’s largest gold buyer which is losing its rank for China.
Spot gold is traded around $1560.65 an ounce after falling from a high of $1568.63 while the day’s low was recorded at $1555.28.
Crude oil also slipped sharply to trade around $91.28 a barrel from the day`s starting level of $91.57.
