Gold steady on persistent euro zone fear

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SINGAPORE: Gold held steady near a record high on Wednesday after a Franco-German summit failed to convince investors that the euro zone debt crisis would be solved effectively, supporting safe-haven demand for bullion.

French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled far-reaching plans for closer euro zone integration, but stopped short of increasing the bloc's rescue fund and said joint euro bonds may be a long-term solution.

Adding to investors' anxiety, the euro zone economy slowed sharply in the second quarter, hobbled by sluggish growth in Germany and stagnation in France.

"People are uncomfortable with what's happening in Europe and the United States," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

He added that strong investment demand has helped gold bar premiums in Hong Kong remain steady at 50 cents to $1 an ounce above spot prices, in line with reports from dealers in other parts of Asia on muted scrap selling and resilient investment interest despite high prices.

Spot gold was little changed at $1,787.80 an ounce by 0658 GMT. It was just 1.4 percent below the record high above $1,813 struck last week.

U.S. gold inched up 0.3 percent to $1,790.70.

The short-term gold technical outlook suggested that gold could pull back to $1,772 an ounce, said Reuters market analyst Wang Tao.

U.S. industrial output recorded its best gain in seven months in July, and home building last month recorded a smaller-than-expected decline, easing fears of a contracting economy.

But the world's largest economy is not out of the woods yet, and the Federal Reserve has pledged to keep interest rates near zero at least through 2012, which would benefit gold.

"The gold market's strength may be due to a continued focus on events in the economy and the likelihood that low interest rates remain a dominant theme," said MF Global in a research note.

Holdings of the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, edged up 0.2 percent from a day earlier to 1,262.899 tonnes by Aug. 16.

This came after regulatory disclosure showed that large hedge funds in the United States had held onto their gold bets in the second quarter.

Spot platinum gained 0.2 percent to $1,815.75 an ounce, on its way to a seventh session of gains as a dip in its relative value versus gold triggered buying interest. (Reuters)