Rally in Gold price were fueled by weakness in the U.S. dollar

The rally in Gold price were fueled by weakness in the U.S. dollar, as the U.S. Dollar Index (DXY) fell 0.6% to 77.609. Although the gold price initially plunged amid further liquidation in precious metals, it rebounded yesterday afternoon alongside other dollar-denominated asset classes. The broad-based rally in commodities and stocks was fueled by reports that euro zone officials were considering implementing additional measures to combat the sovereign debt crisis.

Although no specific plans were announced, European Central Bank (ECB) executive board member Lorenzo Bini Smaghi stated at a conference on Monday that assets from the €440 billion European Financial Stability Fund (EFSF) could be used as collateral to borrow from the ECB. Such borrowings could then be used for additional bailout funds and/or to help recapitalize troubled European banks.

Gold price moved sharply higher Wednesday morning, gaining $31.00 to $1,658 per ounce. After sliding 6.5% over the past two trading sessions, the price of gold moved higher on bargain hunting among investors and traders. Silver spiked higher by a huge $1.82, or 5.9%, to $32.56 per ounce. On a closing basis, gold’s sister precious metal declined 24.4% over the last six trading days. Optimism that European leaders are beginning get serious about stemming the waning confidence in the continent’s banking system helped buoy global stock and commodity markets.