Gold has oscillated between gains and losses as investors await Friday’s European Summit

Although the gold price headed north on Thursday, it remains close to the mid-point of the $1,600-$1,900 per ounce trading range it has occupied for the past several months. This week the price of gold has oscillated between gains and losses as investors await Friday’s European Summit, where policymakers are expected to present a more formidable plan for dealing with the euro zone sovereign debt crisis.

Daniel Smith, an analyst with Standard Chartered, wrote in a note to clients yesterday that “Such a big unknown event risk is making people quite cautious and, heading into year-end as well, no one really wants to take any positions and it adds to that lack of interest in the market… My assumption would be that the summit would end up being slightly disappointing and therefore, base metals will do relatively badly and gold will do relatively well on the back of fresh safe-haven flows.”

Another downgrade warning from Standard & Poor’s also helped support the gold price on Wednesday, as the ratings agency placed the European Union’s AAA credit rating on CreditWatch with negative implications. The move indicated a 50% probability of a downgrade over the next three months.

In its report, Standard & Poor’s noted that “The CreditWatch on the E.U. is an expression of our concerns about the potential impact on the future debt service capacity of eurozone sovereigns, and therefore also the E.U., in the context of what we view as deepening political, financial, and monetary problems within the euro zone.”

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