LONDON: Gold prices rallied 3 per cent on Friday and were on track to end June with their first monthly rise in five as a deal to shore up banks and cut borrowing costs at a European Union summit sparked a surge in assets seen as higher risk. Euro zone leaders agreed to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union. The news sparked a sharp rally in European shares, a 1.9 per cent jump in the euro versus the dollar, and a near $4-a-barrel gain in oil prices. Spanish and Italian government bond yields fell, and safe-haven German Bunds slid. "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, said. Spot gold was up 3 per cent at $1,596.76 an ounce at 1303 GMT, while US gold futures for August delivery were up $47.40 an ounce at $1,597.70. Still, the metal stayed on track for its biggest quarterly drop since the three months to Sept. 2008, down 4.3 per cent since end March. In that period, the dollar rose and hopes faded that the Federal Reserve would unveil further monetary easing. After a widely celebrated 11-year bull run, which took gold prices to a record $1,920.30 an ounce last September, it is now little better than flat on the year and has averaged just over $1,650 an ounce in the first half. "After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher," Saxo Bank vice president Ole Hansen said. "The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building." "They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends."

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