Gold seems to be in a holding pattern as we await word from the European Summit, which convenes Thursday and Friday. Gold prices held above $1,580 on Tuesday, and the U.S. Dollar Index displayed a 0.4% rise to 82.550.
At the upcoming Summit, the 20th one so far, EU leaders will discuss ways to stop the ongoing economic turbulence in the European region from spinning out of control as it did in Greece, specifically addressing the newest crisis in Spain.
Amidst fears of inflation, gold has gained strongly over the past decade, shooting over $1920 an ounce last year—a clear indication of investors’ faith in the precious metal. However, the protracted crisis in Europe, along with the generally sluggish world economy, is now causing worries that the precious metals industry will lose steam, according to Reuters.
Germany’s rigidity in the face of international pressure hasn't helped ease the markets, either. German Chancellor Angela Merkel derided the notion of Europe issuing common euro zone bonds, which negatively affected world markets.
Gold dropped 3.3% last week as well after the Federal Reserve meeting's failure to announce QE3.
According to the International Business Times, UBS analysts wrote to clients:
“With the (Federal Reserve) event risk out of the way for now, Europe regains centre-stage as EU leaders meet for the summit in Brussels which starts on Thursday. But while gold’s reaction to (Fed) outcomes is clear-cut, its reaction function when it comes to euro zone headlines has been quite muddled. The ambiguity and difficulty in trading gold in this type of environment adds to the lack of urgency to hold gold especially now that balance sheet expansion from the Fed does not seem likely in the near-term.”
Analysts, however, remain convinced that gold will pull through in the long run. Once central banks figure it out, gold could rise again.
The SPDR Gold Trust, the largest gold ETF, was stable on Monday.