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July 22 (Bloomberg) -- Gold headed for the first weekly drop in three after European leaders agreed on a multibillion- euro rescue package for Greece, curbing contagion concerns, and a record rally prompted sales.
Immediate-delivery bullion dropped for a second day, losing as much as 0.3 percent to $1,586.25 an ounce, before trading at $1,588.25 by 2:42 p.m. in Singapore. Spot gold, which touched a record $1,610.10 on July 19 on debt concerns in Europe and the U.S., is 0.3 percent lower this week.
Euro-area leaders announced 159 billion euro ($229 billion) in aid for Greece late yesterday after eight hours of talks in Brussels. They also tapped their 440-billion euro rescue fund to buy debt across stressed euro nations, aid troubled banks and offer credit-lines.
“The easing that we saw overnight is justified based on the release of the new plan out of Europe,” Ben Westmore, a minerals and energy economist at National Australia Bank Ltd., said in a Bloomberg Television interview today. “ We’re fairly bearish on the gold price. To be honest we don’t see the outlook being as bleak as what’s being factored into the gold price.”
Gold for August delivery in New York was little changed at $1,588.40 an ounce after gaining as much as 0.4 percent earlier. Holdings in exchange-traded products were little changed near a record at 2,121.241 metric tons yesterday, Bloomberg data show. Spot silver shed 1 percent to $39.0275 an ounce.
For a further gold rally, “you would really need to see a severe threat to Spain or Italy or more systemically important countries,” Westmore said.
In the U.S., lawmakers remain divided over a $3.7 trillion deficit-cutting plan that may allow policy makers to agree on raising the $14.3 trillion debt ceiling before an Aug. 2 deadline. Standard & Poor’s yesterday reiterated there’s a 50 percent chance of a U.S. ratings downgrade within three months.
“It would be a very brave politician in the U.S. to want their fingerprints on the economic fallout from not raising the debt ceiling,” Westmore said. The “situation will be resolved by the August 2 deadline,” he said.
Record gold prices have attracted sales and “scrap flow is noticeably above normal levels” this week, UBS AG analyst Edel Tully wrote in a July 15 report.
“Scrap always comes back to the market in bulk when prices are high and this week we saw a lot of it, but demand is still strong and has been able to absorb the selling,” Gordon Cheung, a trader at Standard Merchant Bank (Asia) Ltd, said today. The scrapping was mainly done in Southeast Asia, with demand being met by investors in Greater China and North Asia, he said.
Cash platinum and palladium were little changed at $1,786 an ounce and $808.50 an ounce respectively.
--Editors: Ovais Subhani, Richard Dobson
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