Gold Prices Rise as EU Leaders Agree to a Fiscal Union

Gold prices rose in trading on Friday as EU countries, excluding Britain, agreed to push for a deeper economic integration. Some strong economic data in the U.S. also lifted gold prices. Despite Friday’s gains, gold prices finished lower for the week due technical selling and worries about euro zone crisis earlier in the week.

Gold once again tracked equities on Friday, climbing after European leaders crafted a new fiscal compact to repair flaws in the currency union. All euro zone countries agreed to implement stricter budget rules to avert a debt crisis in the future. Some non-euro zone countries in the EU have also agreed to sign up to the pact.

Carlos Perez-Santalla, Precious Metals Broker at PVM Futures, told CNBC that there is greater correlation toward the end of the year as most commodities, including gold, are headline correlated. Perez-Santalla said that as investors begin to trade into 2012, gold will climb higher with possible inflation growing.

On Friday, spot gold prices rose 0.3% to $1,712.39 an ounce. Gold futures for delivery in February rose $3.40 to settle at $1,716.80 an ounce.

Despite Friday’s gains, gold fell 2% for the week. Gold prices fell sharply on Thursday after the European Central Bank (ECB) doused hopes of a stronger intervention from the central bank in the bond markets to bring down borrowing costs for Spain and Italy.

The 25-day correlation between gold and the S&P 500 is currently near a one high of positive 0.7, indicating that gold has moved in tandem with risk assets in recent weeks.

George Nickas, a Commodities Trader with INTL FCStone, told CNBC that the markets are digesting the European news, which has so far been inconclusive. Nickas said that gold investors are going to be deferring making major decisions until after the New Year.

Dennis Gartman, a veteran trader, said in a note on Friday that he would exit his gold position entirely should bullion in euro terms fall below 1,275euros an ounce. Gartman has been bullish on gold priced in non-U.S. currencies.

Rick Bensignor, Chief Market Strategist at Merlin Securities, told CNBC that gold again pulled back from its downtrend line from this year’s highs. Bensignor expects another test of the major uptrend line to come next.

On Friday, investors’ confidence was also lifted after U.S. consumer sentiment rose to the highest level in six months in December. A separate report showed that the trade deficit in the U.S. narrowed in the month of October. The consumer confidence data, along with last week’s jobs report, indicate that the U.S. economy is gathering momentum.

However, gold prices are expected to continue to move on developments in Europe.

James Steel, Chief Commodity Analyst at HSBC, told CNBC on Friday that the metal is also weighed down by gold lending by European banks for U.S. dollars. Steel said that until funding difficulties at European banks are resolved, it is difficult to see any near-term halt in gold lending.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.27% higher at $166.40, the Market Vectors ETF Trust (NYSE: GDX) ended the day 1.08% higher at $57.83, and the iShares Gold Trust (ETF) (NYSE: IAU) ended the day 0.18% higher at $16.68.

Silver prices also rose on Friday, with spot silver climbing 1.7% to $32.17 an ounce. The iShares Silver Trust (ETF) (NYSE: SLV) ended the day 2.12% higher at $31.33, the ProShares Ultra Silver (ETF) (NYSE: AGQ) ended the day 4.13% higher at $57.79, and the ProShares UltraShort Silver (ETF) (NYSE: ZSL) ended the day 3.62% lower at $12.52.

In other precious metals, palladium rose 1.6% to $681.75 an ounce, while platinum rose 1.3% to $1,509.99 an ounce.