GOLD PRICE NEWS – The gold price surged higher on Friday alongside the broader financial markets after euro zone officials agreed at the European Summit to ease restrictions on emergency loans to European banks. The spot price of gold climbed as much as $44.37, or 2.9%, to $1,601.27 per ounce in morning trading, putting the yellow metal on pace for its second-best day since last October.
Weakness in the U.S. dollar helped propel the gold price higher, as the U.S. Dollar Index (DXY) tumbled 1.7% to 81.605. The euro currency was a significant benefactor of the European news, as it jumped over 200 basis points to 1.2697 against the dollar.
Silver turned sharply higher in concert with the price of gold, by $0.95, or 3.6%, to $27.40 per ounce. Gold and silver shares advanced as well, with the Philadelphia Gold & Silver Index (XAU) rising 2.9% to 156.83. Barrick Gold (ABX), the world’s largest gold mining company, added 3.1% to $37.34 per share. Newmont Mining (NEM), the largest U.S.-based gold producer and the only gold stock included in the S&P 500 Index, climbed 2.2% to $48.16 per share.
As for the broader equity markets, European exchanges in France and Germany posted gains of over 4% on Friday. In the U.S., the Dow Jones Industrial Average (DJIA) soared 217.81 points, or 1.7%, to 12,820.10 while the S&P 500 jumped 23.94 points, or 1.8%, to 1,352.98. Investor risk aversion fell substantially, as the CBOE Volatility Index (VIX) slid 8.9% to 17.96.
With the two-day European Summit drawing to a close Friday morning in Europe, policymakers finally agreed to measures aimed at reducing borrowing costs for Italy and Spain. Under the plan, taxpayers will no longer be required to receive preferred creditor status on aid to euro zone banks. In addition, recapitalization of banks will be able to proceed with bailout funds once Europe sets up a single banking supervisory body by the end of this year. The measures represented a considerable change in stance for Germany, which up until now had balked at exposing its own taxpayers to the risks of additional bailout measures.
The agreement came after Spanish Prime Minister Mariano Rajoy and Italian Prime Minister Mario Monti refused to sign off on a 120 billion euros ($149 billion) plan to support growth and jobs in Europe until winning the concession immediate financial assistance for their nations’ banking systems.
While financial markets cheered the news, several economists and market pundits cautioned that many hurdles remain for the euro zone. Art Cashin, director of floor operations for UBS Financial Services at the New York Stock Exchange, wrote in his daily note to clients that “Stocks on both sides of the pond are having a dizzying rally as first light hits New York. Details of the ‘agreement’ are still a bit sketchy and are beginning to vary slightly, depending on which leader is outlining them.”
“In broad terms, a few things seem consistent,” Cashin added. “New loans to Spanish and Italian banks would get no priority standing. The loans would go straight to the banks and not through the sovereigns. Banks would not have to be in a ‘program’ to get such a loan.”
As for the gold price, Simon Weeks – head of precious metals at Bank of Nova Scotia – commented that the euro 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.”
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