NEW YORK (Reuters) - Gold resumed its rise on Wednesday after the last session’s drop from record highs, as investors focused on economic uncertainty despite progress in talks on raising the U.S. debt limit and ahead of a euro zone summit aimed at resolving the region’s debt crisis.
Gold is about 1 percent below its record high of $1,609.51 a day after the metal snapped an 11-day winning streak, the longest in four decades.
Lingering anxiety about unfavorable outcomes to debt issues in Europe and the United States, however, underpinned gold buying. Bullion remained higher after White House said it is open to a short-term deal extension to avert a U.S. default
“The deal is not done, even it seems like everyone is somewhat optimistic about what is being implemented. And no one knows what’s going to happen to Greece and Europe,” said Phillip Streible, senior market strategist with Lind Waldock, a unit of futures broker MF Global.
“I can see another healthy correction before fresh buying comes in if there are some form of resolutions, as the need for safety will come off for the time being,” he said.
Spot gold was up 0.5 percent at $1,596.09 an ounce by 2:49 P.m. EDT (1849 GMT).
U.S. gold futures for August delivery settled down $4.20 an ounce at $1,596.90, reflecting Tuesday’s decline after the contract’s settlement. August traded between $1,581.10 and $1,600.80. Trading activity was about one-third below its 30-day average.
One analyst, however, said the metal is long overdue for a correction given its failure to rise further even as open interest in U.S. gold futures hit its highest since January.
“That seems like a crack in the structure of the market and sets the stage for the inevitable and very long overdue correction,” independent investor Dennis Gartman said.
Latest exchange data showed U.S. gold futures’ open interest, a gauge of market liquidity, rose 2 percent this week to top 540,000 lots as of Tuesday, the highest since January.
Bullion has gained around 6 percent this month due to uncertainty over whether politicians will reach a deal to raise the $14.3 trillion U.S. borrowing limit before an August 2 deadline.
Despite signs of progress, bullion investors instead paid attention to the uncertain outcome in U.S. debt talks that have threatened the United States’ top-notch credit rating.
The White House shifted gears on Wednesday and signaled that President Barack Obama could support a short-term extension of the U.S. borrowing limits as long as it was part of a broader long-term deficit reduction deal.
The switch came a day after the so-called Gang of Six senators produced an ambitious deficit reduction plan that Obama latched onto as a way to help break through an impasse in an increasingly grim standoff.
Gold was also supported after the head of the European Commission Jose Manuel Barroso said EU leaders must find a convincing solution to Greece’s debt crisis at a summit on Thursday or the global economy will pay the price.
The European Union was said to be considering enabling the euro zone bailout fund to recapitalize banks, according to reports. The news boosted the euro and weakened gold’s safe-haven appeal.
Silver was up 2.1 percent at $39.76 an ounce.
Platinum group metals also rose, with platinum up 0.5 percent at $1,770.99 an ounce, while palladium was up 0.7 percent at $790.72 an ounce.
Additional reporting by Jan Harvey in London and Rujun Shen in Singapore; Editing by Dale Hudson