Gold Still Set for Big Week Despite Early Weakness

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Gold eased on Friday but was still on course for its biggest weekly rise in two months after the euro zone's last-minute deal on containing debt crisis buoyed commodities and equities in the previous session.

Spot gold retreated from a one-month high of $1,751.99 to $1,736.69 an ounce by 0917 GMT, down 0.4 percent from the previous close, but still on course for a gain of around 6 percent from a week earlier, the biggest one-week rise in two months, according to Reuters graphics.

"It's underperforming ... right now, which is not surprising us at all ... although we wouldn't rule out further consolidation at the current level, we still firmly believe that the risks in the system longer term justify even higher prices," Commerzbank analyst Eugen Weinberg said.

The precious metals rose on Thursday, boosted by gains in equities and commodities as the dollar dropped after a euro zone agreement to boost the region's bailout fund and slash Greece's debt.

Even as many investors returned to riskier assets, gold also benefited from some safe-haven flows by investors who remained wary about the euro zone agreement until more details emerge.

On Friday, the head of Europe's bailout fund said he does not expect to reach a conclusive deal with Chinese leaders during a visit to Beijing but expects the surplus-rich country to continue buying bonds issued by the fund.

U.S. gold GCcv1 lost around 0.4 percent to $1,739.70, also headed for its sharpest one-week gain in two months with a 6.3 percent rise.

The dollar index edged up after suffering its biggest one-day loss in more than two years, as the euro rally paused. A stronger dollar makes commodities priced in the greenback more expensive for holders of other currencies.

European shares extended the previous session's rally.

ECONOMIC FUNDAMENTALS

The relief on Europe's problems, however temporary, will allow investors to shift their attention to other pressing concerns.

Many market watchers expect China's central bank to begin to loosen up its tight liquidity policy by the end of the year, as China's economic growth slows and hopes run high that inflation has peaked.

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust fell 0.05 percent from Wednesday to Thursday, while that of the largest silver-backed ETF, New York's iShares Silver Trust SLV, remained unchanged for the same period.

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