Gold Crosses $1600 an ounce Level as EU Summit Cheer up Global Markets
Gold Prices shot up on Friday as EU leaders on the final day of their summit in Brussels announced some much needed measures that could potentially solve both the banking crisis and debt crisis in the euro zone, lifting the market sentiment which ebbed in June amid global economic slowdown and fears of deflation.
The yellow metal gained 3% in June thus ending its five month losing streak. However, the metal is still about 6% down since the beginning of the year.
The summit which concluded on Friday was the 20th meeting among EU leaders centered on the debt crisis which first emerged in Greece about two years back. Although the meeting was most anticipated event of last week, investors were unenthusiastic as previous summits failed to find any concrete solutions. Market participants were worried that euro zone member countries’ conflicting policies (mainly Germany) will once again offer no tangible solutions and the crisis will drag on.
However, the pessimism turned into optimism when EU leaders, announced that struggling euro zone banks (mainly in Spain and Italy) will be allowed directly to recapitalize from area’s rescue funds without depending on government debts. Moreover, in a move aimed at bringing down borrowing costs of government debts, the EU leaders also agreed on intervening in bond markets.
Following the news, both equities and commodities rallied across the world. European equities weighed down by debt crisis, leaped. The Pan European Index Stoxx 600 ended 2.66% higher. Spain’s Ibex 35 gained 5.66% while Germany’s Dax climbed 4.33%.
The euro strengthened sharply against the U.S. dollar, gaining 1.3% even as bond yields on Spanish, Italian dropped. Crude oil prices added $3 a barrel.
Spot gold was up by $49.61, a 3.2 percent gain, to settle at $1600.36.
U.S. gold futures leaped as it added $53.80 to settle at $1604.20.
Commenting over the unexpected development at the EU summit and subsequent euphoria which has engulfed the global markets, Simon Weeks, head of precious metals at the Bank of Nova Scotia, said to Reuters, “The news has been positive for the euro and positive for confidence in general, which means that equities and commodities, including gold for the time being, have all received a shot in the arm.”
Gold which touched a record high of $1920 an ounce in September 2011 has been up and down this year; however, it still averaged $1650 an ounce on an average for the first six months of 2012. Gold had a record breaking 11 year stretch where its prices gained. The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 2.74% higher at $155.19.
Gold analysts, though, believe that it is too early to expect a rally in the bullion markets.
For instance, Ole Hansen, Saxo Bank Vice President, said to Reuters, “After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher, …the worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building. They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends.”
In its note, Marex Spectron, world’s largest privately owned broker wrote, “… this news.. Is no more than a sticking plaster on an amputation, and as such while the markets will for the moment react favorably, in the long run we still have a long way to go.”
In some other precious metal markets, Silver gained 4.71 percent, closing at $27.58 an ounce. Spot platinum added 4.29 percent to settle at $1,442.98 an ounce, while spot palladium climbed up 3.54 percent to $580.75 an ounce.
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Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.
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