Prices climb along with the euro after European leaders announce a commitment to shore up banks.
A weaker U.S. dollar was boosting gold prices Monday as investors cheered France and Germany's commitment to a plan to recapitalize European banks.
Gold (-GC) for December delivery was up $32 at $1,668 an ounce at the Comex division of the New York Mercantile Exchange. Gold has traded as high as $1,673.10 and as low as $1,639.90 an ounce, while the spot gold price was adding $24.50, according to Kitco's gold index.
Silver (-SI) prices were rising $1.27 at $32.26 an ounce while the U.S. dollar index was losing 1.6% at $77.33.
Gold and euro were rallying Monday after French President Nicolas Sarkozy and German Chancellor Angela Merkel agreed that a plan should be set in place to shore up Europe's financial system. Without providing details, the leaders committed to unveiling a plan within three weeks to protect banks even if Greece defaults.
The news lifted the euro and weighed on the dollar, which in turn boosted gold prices as they try to climb back to the $1,700 level. Also helping gold was strong physical buying from China as the markets reopened after a week long holiday.
"The metal continues to be underpinned by strong physical and retail investment demand," says James Moore, research analyst at FastMarkets.com.
Merkel wants the European Financial Stability Fund, or EFSF, to be a lender of last resort after private and government funding. Sarkozy wants the EFSF to backstop banks before governments in order to protect France's triple A credit rating. Some reports have speculated that the European Central Bank might be forced to print more money to then lend to banks -- a bullish sign for gold.
"Heightened uncertainty over the state of the global economy, and Europe in particular," argues Barclays, "provide a gold-fertile backdrop and we retain our positive view on gold." Barclays sees $1,875 an ounce gold prices in the fourth quarter and a 2012 annual average of $2,000 an ounce.
