Gold Forges Higher on Hopes of EU Plan

By TATYANA SHUMSKY

NEW YORK—Gold futures cinched their second day of gains amid hopes of a comprehensive solution to Europe's debt crisis and robust demand for physical gold in Asia.
The contract for October delivery gained $16.40, or 1%, to settle at $1,651.50 a troy ounce on the Comex division of the New York Mercantile Exchange.
Europe's debt crisis remained in focus as investors hoped ongoing talks would yield a plan to resolve the region's sprawling problems by Wednesday, when a second summit is due to be held after weekend talks failed to deliver a plan. Euro-zone officials are looking at ways to hem in regional debt, boost the European bailout fund's firepower and bolster the banking system.
"We have advanced well on all subjects," French President Nicolas Sarkozy told reporters Sunday, when the first of two euro-zone summits was being held. He added that "much work" lies ahead.
Such signs of progress in Europe have damped fears that cash-strapped banks would liquidate their assets amid market panic, in a move that would threaten gold prices alongside riskier investments.


"If you're a little bit less worried that there is a European bank crisis out there you will speculate that if banks are going to get recapitalized, they don't need to shed their assets, and that includes gold," said Bart Melek, head of commodity strategy at TD Securities.
Gold prices had slumped 11% in September as investors rushed to the safety of cash amid fears that a Greek default would spark a liquidity crunch.
Gold futures have traded above $1,600 for over two weeks in another positive sign, said Frank Lesh, a broker and futures analyst with FuturePath Trading.
"We had a big selloff and we've been looking for the market to find some support, and it appears as if it has," Mr. Lesh said.
Gold prices are also seeing a boost from demand for physical gold in Asia. India's wedding season, the traditional time for gold gift-giving in the sub-continent, is well underway and gold traders in the region are reporting improved demand for the precious metal.
"Physical demand is expected to support both gold and silver prices in coming months, amid the seasonally strong period for consumption," said Suki Cooper, a precious-metals analyst with Barclays Capital, said in a note to clients.
In other news, Citigroup raised its gold and silver forecasts for 2012 and 2013. The bank expects both metals to recover from recent price drops as the macroeconomic and financial factors that fueled the run-up over the past three years are seen continuing for the next 12 to 18 months.
Citigroup now expects gold prices to average at $1,950 a troy ounce over 2012, up from $1,650 previously, while silver will average $32.90 a troy ounce, up from $26 a troy ounce. By 2013, the bank sees the average price of gold at $1,745 a troy ounce, up from a previous forecast of $1,500, while silver will trade at an average price of $27 a troy ounce, up from $22.40 seen earlier.