Gold climbs but still set for worst quarter in 8 years

LONDON: Gold prices rose on Friday along with the euro after leaders at a European Union summit struck a deal to cut borrowing costs for Spain and Italy, but stayed on track for their biggest quarterly drop in eight years after a dire performance in May and June.

The metal has fallen 5.87 percent since the end of March, its worst quarter since the three months to June 2004, as the dollar benefited from safe-haven flows and hopes faded that the Federal Reserve would launch another round of U.S. quantitative easing.

After a widely celebrated eleven-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."

"The event that could trigger the spark that put some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table which could be triggered by a move below $1,500."

Spot gold was up 1.3 percent at $1,570.20 an ounce at 1003 GMT, while U.S. gold futures for August delivery were up $20.20 an ounce at $1,570.60.

Financial markets have rebounded strongly from Thursday's losses. The Euro STOXX 50 volatility index, Europe's main gauge of anxiety, sank 10 percent to a one-week low of 25.25 as investors' appetite for risky assets recovered following a deal at the EU summit.

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.