Gold Price Rally as Investors Optimist Europe Recapitalize Bank

Rally for gold price came as investors turned more optimistic about Europe’s plan to recapitalize banks, said Tom Pawlicki, a metals analyst with MF Global in Chicago.

The hopes Europe will be able to keep its sovereign-debt woes under control grew as European Commission President Jose Manuel Barroso on Wednesday outlined the plan.

Gold had tanked in recent weeks as the euro zone’s sovereign-debt concerns grew so intense investors dumped the metal to raise cash and make good on their bets in other investments.

Gold ended lower Tuesday as investors were sidelined ahead of a key vote about Europe’s bailout fund. After gold’s floor trading closed, Slovakia rejected a plan to enhance power of the fund, disrupting attempts to keep the crisis contained.

Another ray of hope for gold came from recent data from the U.S. Commodity Futures Trading Commission. Data Friday showed fund managers have started to modestly move back to gold.

“(Money managers) are buying again,” and numbers, however modest, could foretell a shift in sentiment for gold, Pawlicki said.

CFTC data released late Friday showed managers’s net-long positions, or bets gold will go higher, increasing by more than 5,000. That was only the second increase of net longs in nine weeks, Pawlicki said.

Amid the recent volatility in gold, fund managers liquidated more than 100,000 net-long positions, so the increase is “a drop in a bucket” but a step in the right direction, he added.

Other metals tracked gold higher, with December silver SI1Z +2.41% rising 71 cents, or 2.2%, to $32.71 an ounce. Copper for the same month’s delivery HG1Z +3.01% rose 11 cents, or 3.3%, to $3.40 a pound.

Meanwhile, the dollar index DXY -0.88% , which compares the greenback against a basket of six currencies, fell to 76.951 from 77.549 late Tuesday.

A lower dollar generally helps gold and other commodities as it lowers their price for holders of other currencies, broadening their investment appeal.

Gold for December delivery GC1Z +1.20% added $20.50, or 1.2%, to $1,681.40 an ounce on the Comex division of the New York Mercantile Exchange. It had earlier traded as high as $1,693.90 an ounce and as low as $1,662 an ounce.

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