Gold back at $1,600 as dollar loses out on ‘EUphoria’

Spot gold prices surged $48 an ounce, or more than 3 per cent, on Friday to end the week at near $1,600/oz levels as an EU summit produced concrete steps to battle the debt crisis and ease credit conditions.

In what analysts are dubbing as ‘EUphoria’, the positive sentiment flowing from the European Union summit sparked a global risk-on rally that sent gold climbing against the US dollar, the yellow metal’s traditional hedge.

New York gold prices, which closed at $1,552 a troy ounce on Thursday, rallied on newfound support from punters and registered an intra-day high of $1,603.35/oz before settling at $1,599.10/oz by end-of-play on Friday, June 29, 2012.

The yellow metal rallied through two resistance levels – $1,584 and $1,597 – during the session, and looks all set to carry on with the positive momentum tomorrow unless bad news resurfaces.

“Gold traded last Thursday briefly down to $1,548 and the news from Brussels led to a significant rally, which saw prices rising up to $1,606,” said Gerhard Schubert, Dubai-based Emirates NBD bank's head of precious metals. “Gold closed the week towards the higher end of last week's trading range," he added in his weekly report on precious metals.

“Downward pressure on precious metals has lifted after EU leaders appeared to have made more progress in tackling the Eurzone problems than many market participants had anticipated,” Standard bank analysts Marc Ground wrote in his latest precious metals daily report.

“Amongst the measures agreed upon was a €120 billion [$151bn] stimulus package, the creation of a banking supervisory mechanism through which Eurozone banks could be recapitalised directly by the ECB [European Central Bank], and the likelihood of the European Stability Mechanism/Europeans Financial Stability Fund being allowed to buy sovereign bonds in the secondary market without imposing binding budgetary rules,” Ground summarised.

“The news has cheered markets, with buying across assets, and precious metals are also benefitting from the renewed strength in the euro (i.e., weaker dollar),” he wrote.

The last trading day of June reversed its fortune for the month, and the yellow metal ended a month in the green for the first time in five months, bringing relief to scores of investors who have been locked-in with bullion owing to its recent declines.

Gold had been on a downward spiral ever since hitting its 2012 high of $1,776 in February. “The gold market has been very weak leading up to [Friday],” James Steel, a commodities analyst with HSBC in New York, said. He added that the progress made at the EU summit prompted a strong turnaround.

“Gold prices [were] under some pressure earlier in the week, mostly in sympathy with falling ‘industrial’ precious metals, as Silver, Platinum and Palladium gave up significant levels. However the gold price development looks very static at the moment inside the $1,523 to $1,640 level,” said Emirates NBD’s Schubert.

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