Gold Edges Back Slightly From Friday Rally

July 2, 2012 – A stronger dollar put pressure on gold futures Monday, causing the price of gold to edge back from a rally Friday based mostly on anticipation of the European Summit that was held in Brussels.

Gold futures popped on Friday in tandem with the euro and with other commodities, rising 3.5 percent following the announcement by European Union leaders that the Eurozone’s rescue fund will be directly used to recapitalize the distressed banks while the European Central Bank will act as the region’s supervisory bank.

Whether the announcement will have an immediate effect on the sovereign debt crisis in Europe appears to be the focus of the contention Monday as many commodities edge back from the gains made on Friday. The euro also fell against the US dollar following reports that the Netherlands and Finland plan to block parts of the rescue package, which they agreed to last week.

The euro was down 7 bps to $1.259 from $1.266 late Friday in New York.

In a note to investors, Morgan Stanley said the strength in the dollar and broad weakness in the euro, “reflecting the ongoing sovereign debt crisis in the euro zone, have also added to the headwinds confronting the gold price.”

Additional weak economic data out of China added to the market sentiment. China’s manufacturing sector registered a continued pullback as of market data on Monday. Both official government data and HSBC’s index showed slowed activity in June as traders keep a close eye on the activity in China, which has surpassed India as the world’s largest consumer of gold, according to the Wall Street Journal.

Economic activity in the West is also contributing to market performance in the precious metals. A very weak reading of US manufacturing activity for June is partially to account for the gain in the euro against the dollar and has provided some lift to gold.

The spot price of gold was down 0.1 percent to $1,595.44 per troy ounce after dropping to a low of $1,586.84.

“It helps to at least allow the market to consolidate and, having now confirmed some downside support, to tackle what is overhead, around $1,615-$1,620 per troy ounce,” said Robin Bhar, an analyst with SocieteGenerale.

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