By Harpreet Bhal
London - Gold held steady on Wednesday, with investors marking time ahead of a European Union summit this week which they hope will deliver a lasting solution to the region's debt crisis, while a weak euro weighed on the precious metal's price.
Spot gold eased 0.1 percent to $1,725.19 an ounce by 1148 GMT, reversing gains from the previous session.
Caution about the euro zone debt crisis is expected to dominate sentiment this week, ahead of a European Union summit on Friday and a European Central Bank meeting on Thursday.
The EU summit comes against the backdrop of mounting expectations that leaders will take steps to forge greater fiscal integration in the bloc, while the ECB is seen cutting its main interest rate for the second month running.
Monetary policy easing raises the inflation outlook and benefits gold, seen as an inflation hedge.
“For the moment gold is likely to trade with the rest of the commodity sector and the short-term outlook depends on what we hear from the summit,” said Eugen Weinberg, head of commodity research at Commerzbank.
“But hopes are already so high that it is likely that some will be disappointed.”
Adding to pressure for gold prices, the euro fell against the dollar after a German government official said Berlin was increasingly pessimistic about the chances of a deal to solve the euro zone debt crisis at this week's summit.
A strong dollar makes commodities priced in the US unit more expensive for holders of other currencies.
Gold hit a record $1,920.30 in September and is trading up almost 22 percent in the year-to-date. On Wednesday it held below its 100-day moving average at $1,727.73, and analysts reckon events this week could test the precious metal's resilience.
“It's a difficult week ahead, but gold risks testing its recent lows around $1,700/oz. If European leaders manage to come up with a plan, we will likely see a relief rally in the euro which will take gold higher with it,” ANZ analysts said in a note.
Although gold is regarded as a safe haven asset to shield investors in times of uncertainty, it has increasingly become prone to pressure from the wider financial market, moving in tandem with other assets as investor sentiment remains fragile.
Among other precious metals, spot silver slipped 0.6 percent to $32.52, while platinum slipped 0.1 percent to $1,518.25 an ounce.
The gold-platinum spread widened to $204 an ounce on Tuesday, its widest since Reuters started recording prices in 1985, and remained around $200.
Platinum has been at a discount to gold for the past three months - the longest period since 1985, as the metal, mainly used in jewellery and autocatalysts, lost its attraction during the global economic downturn. - Reuters