Gold price hits 2-1/2-week high on Cyprus bailout worries
But a firm dollar and general perception of an economic recovery quickly snuffed out the rally, sending gold below the key resistance level of $1,600. The euro zone agreed on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but forced the country's depositors to pay up to 10 percent on their savings despite the risk of a wider run on savings.
Investors are worried the proposal, if ratified by the Cypriot parliament on Monday, would become a dangerous template for future bailouts in the bloc and set off turmoil, after the market has grown more confident in the bloc's recovery in the past few months.
"The Cyprus crisis is bearish euro and bullish dollar, which is mathematically negative for gold," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong."But it does raise the question how the ECB is going to continue to allow tightening of credit, which has been happening as a result of LTRO repayment."
The ECB pumped over a trillion euros into money markets in two long-term refinancing loans (LTROs), in December 2011 and February 2012, to provide liquidity for banks.Friesen said if the ECB could turn on the tap again and help its economy by
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