Gold Price Surges as Europeans Prepare to Fire up Printing Press

GOLD PRICE NEWS – The gold price spiked toward $1,650 per ounce Friday, rallying on the back of weakness in the U.S. dollar and on speculation that European leaders were prepared to print over a trillion dollars to prevent a systemic crisis.  Ministers from all 27 members of the European Union will meet tomorrow to discuss how to bolster market confidence in the integrity of its banking system.  Stock and commodity prices moved higher across the board with the $31.90 rise in COMEX gold futures accompanied by a 5.1% rise in copper and a 1.7% gain in crude oil.

On Thursday, the gold price declined amid a plethora of reports and speculation on the status of the European Financial Stability Fund (EFSF).  The spot price of gold plunged to $1,603 yesterday morning, before paring its decline to close lower by $19.60, or 1.2%, at $1,621.06 per ounce.  The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, retreated $2.10, or 1.3%, to $157.77 per share.

Silver prices, which fell 2.2% yesterday, advanced 3.4% to $31.30 per ounce.  Gold and silver equities headed south as well, with the Philadelphia Gold & Silver Index (XAU) closing lower by 0.7% at 181.46.  Among gold mining companies, AngloGold Ashanti (AU) fell 2.8% and Newmont Mining (NEM) slid 1.1%, respectively.  Pan American Silver (PAAS) and Silver Standard Resources (SSRI), two of the larger silver producers, declined 1.8% and 1.7%, respectively.  Gold and silver stocks moved higher Friday morning.

Earlier this week, the gold price and broader financial markets received a boost from a report by The Guardian that European policymakers agreed in principle to expand the EFSF to €2 trillion.  However, officials later refuted the report, placing renewed pressure on stocks and commodities.

On Thursday, various headlines emerged that Europe agreed to leverage the EFSF to a number closer to €1 trillion.  Once again, these reports turned out to be erroneous.  The German ruling coalition soon after announced that not only have any leveraged EFSF plans not been reached, but no such measures will be finalized at this weekend’s European Union summit.  Following this announcement, the gold price and the euro currency each extended their losses.

Commenting on the uncertainty in Europe, Bill Isaac – head of financial institutions practice at FTI Consulting – stated that “Even if the Europeans come up with something very robust that shows they’re going to try to deal with the crisis, this is going to be a long slog.  The problem is a bunch of countries are way overextended and somebody’s going to have to take some losses.”

Saxo Bank’s chief economist, Steen Jakobsen, wrote in emailed comments to Bloomberg that “It’s very important for me to stress all these headlines are pure imagination.”  Jakobsen poured cold water on any leveraged EFSF plans, contending that the “German Constitutional ruling plus EFSF vote in German Parliament makes it impossible for Germany to go ahead with any solutions which means bigger, permanent or increased liabilities…the last 24 hrs has proved that ALL German agreement is subject to later approval by German Parliamentary finance committee.”

“The latest rumors and leaks are all part of extend-and-pretend,” Jakobsen added.  “All solutions will be back loaded with actions taken in 2012 and 2014 rather than here and now…The conclusion however, remains the same: The EU was given a rope – it decided to use it for hanging itself and not to tie down the rudderless ship.”

As for the impact of the euro zone crisis on the gold price, analysts at Bank of America Merrill Lynch noted that the yellow metal could face further headwinds in the short-term if broad-based liquidation resumes in the markets.  However, the firm also asserted that “looking further out we maintain our 12-month price target of $2,000/oz, as the global macro economic backdrop remains supportive.”