Higher Gold Prices Triggered by Europe

In early trading Friday, it was like old times again - gold prices soared and it was well overdue.

The yellow metal glistened in early trading, with gold for August delivery rising 3%, propelled above the key $1,600 level. Fueling the strong gains in gold and other markets were encouraging words out of the European Union summit.

As the pivotal two-day meeting in Brussels wound down, global markets and commodities rallied after EU leaders struck a "breakthrough" deal to ease the recapitalization of banks. The plan was aimed at pulling the Eurozone back from the edge of its debt crisis.

The deal will infuse capital directly into ailing banks, a move Investec bond analyst Elisabeth Afseth dubbed "the bank-sovereign negative feedback loop." Afseth remained dubious of its success, and told CNN Money, "You have to be a little concerned where the funds are coming from."

But market participants were more optimistic, or at least in a good-old-summertime mood, and helped push the Dow Jones up more than 218 points, the Nasdaq up 61 and the S&P 500 up 25 just an hour into trading.

Gold, silver, platinum, palladium and oil all enjoyed strong gains. Gold was up some $46 an ounce mid-morning, silver tacked on more than $1.40 an ounce and oil gushed nearly $4 a barrel.

Commodity traders pointed at heavy short covering for the metals' robust rally. Also giving the commodities a boost was the rising euro and falling dollar.

"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, told Reuters.

Gold Prices Gain in June

Of late, gold has been trading more like a "risk on" asset instead of its historic safe-haven holding, as Friday's movement mimicked.

Friday marked the end of trading for June, and gold is set to close out the month with its first gain in five months.

After a giddy 11-year bull run, which had everyone wanting to own gold as the precious metal hit a record $1,920.30 an ounce in September 2011, gold's gains have since been less-than-stellar.

But, gold is poised to shine again.

"After 11 years it is only natural that gold stops and pauses for a breath before taking the next step higher," Saxo Bank Vice President Ole Hanson told Reuters. "The worry is obviously that that momentum has been completely lost and leveraged players (hedge funds) have left the building."

Hansen continued, "They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends. The event that could trigger the spark that puts some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table, which could be triggered by a move below $1,500."

But, with steady central bank buying providing a nice cushion for gold prices, a move down to that level might be averted.

"Right now it's the perfect storm of ongoing aftershocks of the 2008 financial meltdown and the unrelenting rise and strength in the price of gold that may help it regain the financial respect it deserves," said Money Morning's Global Resources Specialist Peter Krauth.

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