Gold price held steady near $1811 per ounce Friday closing

The gold price held steady near $1811 per ounce Friday closing as markets await the outcome of a meeting among euro zone finance ministers in Poland. While the price of gold stabilized, the euro currency slid 0.7% to 1.3779 against the U.S. dollar. Equity markets in Europe shrugged off the euro’s weakness to post modest gains. U.S. markets nonetheless looked to open slightly lower, with S&P futures down 2.50 points at 1,201.75.

Barclays Capital Research elaborated on why the measures are no panacea for the European financial system in its own report on Thursday. “The EUR has rallied as a result of the measure: it offers term USD liquidity to strained European banks and gives some breathing room to the European authorities,” the firm wrote. ”However, the move is being amplified by short positioning and is likely to be short lived. This measure just alleviates one of the symptoms of the euro area debt crisis and, if anything, confirms the liquidity constraint that banks are facing.”

As Barclays alluded to, there are several other key constraints that the European financial system is facing. One of the most significant is the fact that the debt burdens of many of the PIIGS far outweigh those nations’ ability to generate economic growth. Regardless of how much liquidity the ECB provides to its banks, it cannot create capital – which is a far more binding constraint for European banks. In light of this, the sovereign debt crisis is unlikely to be meaningfully improved by the dollar liquidity provisions. While the gold price may face additional headwinds from these actions in the days and/or weeks ahead, the longer-term economic backdrop for the price of gold remains quite favorable.