Update: Gold & Silver Price Reverse Rally, Stocks Fall as €200Bn EU-IMF Loan Denied by ECB Ahead of "Crucial Summit"

Both the Gold and Silver Price fell sharply Thursday afternoon, reversing the previous 2-session rally after Mario Draghi, president of the European Central Bank, denied any plan for central banks to fund a
€200 billion loan to distressed Euro states via the International Monetary Fund.

Presenting his second monthly press conference since succeeding Jean-Claude Trichet, Draghi again cut ECB interest rates by a quarter-point – now down to 1.00% per year – but warned that bond purchases to support the debt of weaker Eurozone member states is "not infinite."

European stock markets fell sharply, and the Euro currency fell to a 1-week low versus the Dollar as Italian bond yields jumped above 6.0%.

Gold Prices dropped from €1300 per ounce to €1288, and slid from $1742 per ounce for Dollar investors to $1720.

The Silver Price dropped $1 from a near one-week high above $33 per ounce.

"Volume is disappearing from the precious metals market ahead of [Friday's political] European summit," said one Hong Kong bullion dealer overnight.

"Very thin volumes in the gold market," agreed a dealing desk here London. "The market remains reluctant to sell gold aggressively ahead of the European Summit on Friday."

Gold holdings in the giant SPDR Gold Trust ETF slipped 3 tonnes to a 10-day low of 1,295 tonnes on Wednesday.

Holdings for the SLV Silver ETF added 30 tonnes, however, reaching the largest level in more than 3 weeks at 9,726 tonnes.

"Given its lack of inherent drivers, we see silver continuing to trade as a higher-beta version of gold in the short to medium term," said UBS precious metals strategist Edel Tully in a note yesterday.

"[Silver] trading is likely to be characterised by shorter-term plays by more gutsy investors."

"Depressed base metals and crude tempered silver's gains on [Wednesday]," says a note from bullion bank Scotia Mocatta in New York.

On a technical chart analysis, "The Silver Price is once again being supported by the three month support line," writes Commerzbank's Axel Rudolph in his latest client report.

Unless the Silver Price rises through $35.71 per ounce, Rudolph reckons, "the $30.00 support zone (psychological level, mid-October low...) should remain in focus.

"Failure here will indicate that a new down leg is under way."

Speaking ahead of meeting European Union political leaders yet again to discuss an urgent resolution of the Euro currency zone's debt crisis, "The summit that we are going to starts tonight in Brussels is indeed a crucial one," said president of the European Commission Jose Manuel Barroso on Thursday.

"What I expect from all heads of governments is that they don't come saying what they cannot do but what they will do for Europe. All the world is watching us and what the world expects from us is not more national problems but European solutions."

"Should the Euro explode...that would be a catastrophe not only for Europe and France but for the world," said France's minister for Europe Jean Leonetti to Canal+ television this morning.

But responding to the widely-leaked Franco-German proposals for closer fiscal ties in the 330-million citizen Eurozone, "Automatic sanctions are a joke. Fiscal union needs collective, democratic decision-making that can respond to challenges & manage agg. [aggregate] demand," said EU social affairs commissioner Laszlo Andor on Twitter.

Preparing to attend the meeting, British prime minister David Cameron said he was "very focused" on getting "safeguards [and] the best deal for the UK" - the second largest economy in the European Union after Germany, which fell out of the pre-Euro exchange-rate mechanism in 1992.

"When is a €2.4tn balance sheet not enough?" asks the Lex column in today's Financial Times. "When you are the lender of last resort to a banking system in quite such straits as that of Europe. It is time for the European Central Bank to bulk up its books yet again."

But "we think it is very unlikely," counters Steven Barrow, chief currency strategist at Standard Bank. "With any luck, the ECB is still getting to a point where it will act as a lender of last resort for governments but, even after this week, it might not be as close as the market thinks – and that could mean more divergence in Eurozone bond markets."

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