Gold arrests slide made after EU rescue deal

By Jan Harvey

LONDON (BestGrowthStock) – Gold cut early losses of near 2 percent on Monday amid expectations a $1 trillion aid package aimed at alleviating the euro zone’s debt crisis could cement easier monetary policy, and potentially spark inflation.

The metal fell as low at $1,183.85 in early trade as the package boosted risk appetite, lifting stocks, commodities and the euro. However it later pared those losses, briefly rising back above $1,200, as dollar weakness also helped prices.

Spot gold was bid at $1,198.35 an ounce at 1320 GMT (9:20 a.m. EDT), against $1,207.75 late in New York on Friday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $11.30 to $1,199.00 an ounce.

“Today we are seeing a reversal of previous safe-haven flows,” said Tobias Merath, an analyst at Credit Suisse. “The medium-term consequence of what is going on is probably easier monetary policy.”

“Monetary tightening was on the horizon, and now this is likely to postponed,” he said. “That is positive for gold, as interest rates are opportunity costs for non-yielding assets.”

The $1 trillion global emergency rescue package to stabilize the euro reversed a sharp decline in world financial markets on Monday. The euro rose nearly 2 percent, while European shares (.FTEU3: ) climbed more than 6 percent. (.EU: )

Bund futures fell by more than 200 ticks as markets sold safe-haven debt after the European Central Bank said it would buy government bonds as part of a larger rescue deal.

But the package left longer-term questions about whether Europe’s weakest economies can manage their debt. “These measures should… go a long way to reducing money market tensions and helping the euro over the short-term,” said Credit Agricole in a note.

“The problem is that the package may amount to a ‘get out of jail free’ card for European governments,” it said. “A pertinent question is whether the crisis mechanism will keep the pressure on governments to undertake deficit cutting measures.”

PHYSICAL DEMAND PICKS UP

Falling gold prices benefited physical demand, with a 3 percent drop in Indian prices triggering buying of the metal there ahead of a key festival, dealers said.

Other commodities largely rallied on news of the European rescue package in line with assets seen as higher risk. Oil prices surged 4 percent on Monday, and base metals prices jumped.

Industrial precious metals also rose, with palladium climbing more than 3 percent and platinum up 2 percent. Both reflect strong underlying fundamentals, analysts said.

Palladium rallied to a two-year high and platinum to its strongest since July 2008 earlier this year as hopes for a recovery in car demand boosted buying, before correcting sharply.

Platinum was later at $1,690.50 an ounce against $1,656.50, and palladium at $525.50 against $510.

“Platinum and palladium have been acute losers in the risk-off (risk-averse) trading environment in May,” said UBS analyst Edel Tully in a note. “But since last Thursday, tentative signs of stabilization have emerged.

“Today we suggest that the EU mega-package will stem contagion fears and stabilize financial markets, and that the resulting rise in risk sentiment should lead to a relief rally across many risk assets, including platinum and palladium.”

Silver was at $18.47 an ounce against $18.30.

Stock Market Money

(Reporting by Jan Harvey; Editing by Keiron Henderson)

Gold arrests slide made after EU rescue deal