October 28, 2011 / 12:45 IST
By Rujun Shen
SINGAPORE (Reuters) - Rapidly rising bullion prices have triggered some selling on the physical market and wholesale business to India has slowed due to this week's festivals, but strong seasonal demand and investment buying are expected to underpin sentiment.
Spot gold advanced more than $100, or more than 6 percent, from last Thursday, as concerns about the euro zone's debt crisis eased with progress in talks among European leaders on how to solve the problem.
Euro zone leaders struck a deal for private sector holders of Greek government bonds to accept a 50-percent haircut after more than eight hours of hard-nosed negotiations on Wednesday.
"Investors are even more interested in buying physical gold these days as they don't trust the banking system," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
Premiums in Hong Kong softened slightly from a week earlier to below $2 an ounce above spot prices, and were stable in Singapore around $1.50, dealers said.
Gold demand from India, top consumer of the precious metal, was muted this week due to festival activities. India celebrated the important Hindu festival of Diwali this week.
"India's activity will probably pick up next week after people return to work from the holidays," said a Singapore-based dealer.
Gold trade in and out of Thailand has come to a virtual halt, as the country grapples with the worst flood in 50 years that has severely affected businesses and disrupted lives of millions.
But banks and financial markets will operate normally during a special holiday from Thursday to Friday.
Demand for physical gold and silver, especially gold, has remained robust in China, where high inflation and uncertain economic outlook drive investors to seek safety in bullion.
"Risk aversion sentiment is very strong," said a Shanghai-based trader. "Industrial demand for silver is so-so, but silver is following gold's rally."
WEEK AHEAD
Investors will continue to watch the progress made by the euro zone to contain its debt crisis.
Euro zone leaders agreed a comprehensive package of measures to tackle the bloc's debt crisis after an EU summit that ran into the early hours of Thursday.
India's festival and wedding season continues. The weakness of rupee has made local gold prices more expensive, and may weigh on gold purchases.
(Editing by Himani Sarkar)
