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Gold Rises on EU Banking Plan

Release Date: 
Friday, June 29, 2012

Gold prices were sharply higher on Friday as the European Union (EU) summit produced a plan to recapitalize struggling banks in the region. Gold was $46.20 higher at 7:33 a.m. Pacific Time on the New York Spot Market, trading at $1,599.20 per ounce. Spot silver was $1.22 higher, trading at $27.64 per ounce. (Click here for the most current spot prices.)

The EU proposal calls for a single supervisory mechanism for Europe's banking system and a plan to inject capital into the region's banks, emergency action aimed at lowering Italy's and Spain's borrowing costs. The proposal does not require Eurozone nations to adopt additional austerity measures or economic reforms.

The news sparked a rally in the euro, European shares, other equities and commodities. Spanish and Italian government bond yields fell after the announcement. Vishnu Varathan, market economist at Mizuho Corporate Bank, said, "It still falls short of a concrete solution, but the removal of severe pessimism over what's going to come out of the EU summit is driving markets higher."

"Gold and the other precious metals are making a strong recovery from yesterday's lows this morning, doubtless on the back of a much weaker U.S. dollar in the wake of the EU summit," Commerzbank said in a note.

"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," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.

Lynette Tan, an analyst at Phillip Futures, believes that gold may move higher. "In the long run we're still bullish on gold. It's still likely to hit last year's high of $1,920. The global economy is not doing well and we expect safe-haven demand to be back for gold," said Tan.

Gold traders are bullish for a sixth straight week. Sixteen analysts surveyed by Bloomberg said they expect a rally next week and 10 were bearish. Another five were neutral.

(Sources: "PRECIOUS-Gold rallies 3 pct as EU summit boosts confidence," Reuters, June 29, 2012; "PRECIOUS-Gold rises on EU pledge; eyes worst quarter in 8 yrs," Reuters, June 29, 2012; "Gold Traders Extend Bullish Call On European Debt Crisis," Bloomberg, June 29, 2012; "Gold, silver rally as dollar sinks after EU bank plan," MarketWatch, June 29, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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