2012-06-26

Gold Price in “Wait-and-See” Mode as EU Summit Nears

The gold price held steady near $1,573 per ounce on Monday despite further strength in the U.S. dollar and broad-based weakness in the commodities complex.  The price of gold held in a tight range between $1,567 and $1,578 in overnight trading while the U.S. Dollar Index rose 0.4% to 82.550.  The yellow metal is coming off of a 3.3% decline last week, which was driven in large part by the lack of a QE3 announcement at the most recent Federal Reserve meeting.

Ongoing sovereign debt concerns in Europe helped push equity markets across the globe well into the red on Monday.  Asian and European markets posted declines ranging from 0.5% in Hong Kong to as much as 2.4% in France.  In the U.S., the S&P 500 Index retreated by 1.6% to 1,313.20.  Investor risk aversion also turned sharply higher, as the CBOE Volatility Index (VIX) climbed 13.1% to 20.48.
Investors are also awaiting the outcome from the upcoming European Summit, scheduled for this Thursday and Friday.  There, euro zone officials are expected to discuss next steps in their efforts to prevent the economic turmoil in Spain from deteriorating in a similar fashion to that of Greece.  This morning the euro currency reflected further worries over the ability of policymakers to stem the tide of the crisis, as it fell 0.7% to 1.2489 against the U.S. dollar.

Analysts at UBS wrote in a note to clients that “With the (Federal Reserve) event risk out of the way for now, Europe regains centre-stage as EU leaders meet for the summit in Brussels which starts on Thursday.  But while gold’s reaction to (Fed) outcomes is clear-cut, its reaction function when it comes to euro zone headlines has been quite muddled.”

“The ambiguity and difficulty in trading gold in this type of environment adds to the lack of urgency to hold gold,” UBS added, “especially now that balance sheet expansion from the Fed does not seem likely in the near-term.”

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