By: Tom Jennemann

New York 28/06/2012 - Gold futures fell sharply on Thursday, cracking under the pressure of the wide-sweeping pessimism emanating from European summit that kicked off in Brussels this morning.

Gold for August delivery on the Comex division of the New York Mercantile Exchange was last down $19.10 at $1,559.30 per ounce. Trade has ranged from $1,580.00 to $1,573.70.

French and Italian leaders are pressuring Germany to take more aggressive, growth-focused steps to stabilise the eurozone financial sector. But the country has shown no willingness to even consider the joint issuance of debt, cross-border deposit insurance, regional bank integration or using proceeds from bailout funds to buy sovereign bonds.

“Sadly, hopes for a compromise seem to be evaporating, at least judging from the rhetoric coming out of German Chancellor Angela Merkel,” INTL FCStone analyst Ed Meir said. "If anything, Merkel seems to have toughened her stance going into the meeting, rejecting ideas on collectivizing debt and pushing hard for austerity measures to stay in place."

At a press conference earlier this week, Merkel said that euro-bonds and European deposit insurance with joint liability provisions are “economically wrong,” “counterproductive” and “unconstitutional”.

“When I think of the summit on Thursday, I’m concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures,” Merkel said.

Given the market's disappointment with the US Federal Reserve last week, some gold traders were holding out hope that eurozone leaders would at least lay the ground work for some sort of fiscal easing or regional stimulus programmes but that seems less and less likely with each passing minute.

“The Germans have the money and the leverage and they're captaining this ship at the moment. That means austerity, strict discipline and low inflation - none of which is particularly supportive of gold,” a US-based fund manager said.

Standard Bank agreed that much progress towards an integrated budgetary framework or a new shared bond markets is unlikely due to strong German opposition.

“Consequently, we feel that the euro will stay on the back-foot, lending a downward bias to precious metal prices,”  it said.

In wider markets, the euro was last about a third of a cent weaker at 1.2440 against the dollar, while Germany's DAX and France's CAC-40 were off 1.69 percent and 0.73 percent respectively. In the US, the Dow Jones industrial average and S&P 500 opened down 0.75 percent and 0.63 percent.

“This is the 20th European summit in less than three years and they haven't taken any concrete steps to solve the problem. They will make some vague statement about how this is serious situation and how there is unity [among eurozone members], even if there's not, and then they will talk about scheduling the next summit,” the trader said.

“Expectations were low to start with; now they're non-existent. That's being reflected in the equity and currency markets,” he added. "What is interesting; however, is that gold's tracking stocks and isn't acting as a haven. Europe is stepping away from easing, liquidity and inflation so it's understandable that gold is taking a knock."

Elsewhere, US weekly unemployment claims dropped by 6,000 to a seasonally adjusted 386,000 for last week, down from the upwardly revised 392,000 the previous week. This was largely in line with expectations and is having little impact on prices while the markets are mostly focused on Europe.

In other precious metals, Comex silver for September delivery was last down 60 cents at $26.400 per ounce and earlier fell to $26.380 - the lowest in 2012.

Platinum futures for October delivery on Nymex were down $15.10 at $1,398.20 per ounce, while the September palladium contract was at $570.95, down $8.80.


(Editing by Mark Shaw)