Gold Price Dips, is EU Agreement a ?Game Changer??

Nikos Kavalis, an analyst at Royal Bank of Scotland, wrote in a recent note to clients that “We are staunch believers that gold will remain a risk-on asset for the foreseeable future. So if we continue to see a more definitive policy response by authorities, gold will continue to benefit.”

“Having said that … the investment bid will be essential for the price to move up,” Kavalis added. “That will be without a doubt linked to continued news flow. This morning we have had a setback across the sector, and gold has not been left out.”

Silver fell slightly alongside the gold price on Monday, by $0.08, or 0.3%, to $27.43 per ounce. Gold and silver shares underwent a moderate sell-off as well, with the Philadelphia Gold & Silver Index (XAU) dropping 0.6% to 156.60. Notable XAU components in the red included AngloGold Ashanti (AU), Gold Fields (GFI), and Pan American Silver (PAAS). AU retreated by 0.8% to $34.05, GFI by 1.8% to $12.53, and PAAS by 2.4% to $16.48 per share.

As for the broader U.S. equity markets – which posted their best day of 2012 on Friday – the S&P 500 Index slid 3.47 points, or 0.3%, to 1,358.69. The S&P 500 briefly climbed to 1,366.35 – its highest level since May 8th – but turned south after a worse than expected reading on U.S. manufacturing activity. The ISM Manufacturing Index for May fell to 49.7, well below the 52.0 consensus estimate among economists.

Looking ahead, the U.S. economic calendar is relatively full this week even with the July 4th holiday on Wednesday. The most important item is likely to be Friday’s non-farm payroll report, which is expected to show a considerable decline in U.S. job growth.

In Europe, the Bank of England (BOE) and European Central Bank (ECB) will each conduct their monthly monetary policy meetings on Thursday. The ECB is expected to lower its benchmark interest rate by 25 basis points to provide the euro zone with further stimulus to combat the escalating sovereign debt crisis.

As for the EU summit agreement, several market strategists weighed in over the weekend with their thoughts on its potential impact. Analysts at Barclays wrote in a report that the measures announced are “not a game changer” for the euro currency.

“The agreement to allow Spanish banks to be directly recapitalised from the ESM is conditional on a single supervisor for euro are banks being established. This is not expected until the latter half of this year. In the interim, aid to Spanish banks will continue to inflate Spanish sovereign debt levels. In addition, headlines this morning have already started to water down the other conclusions reached. For example, the agreement to deny seniority to ESM resources used to recapitalise banks has been limited to Spain and there is no agreement over the seniority of EFSF resources. Similarly, Mrs. Merkel’s comments that ‘countries must fulfil conditions for bond-buying programmes that Troika must check’ suggest the agreement on how to implement the conclusions reached is not as strong as headlines initially suggested.”