Gold price oscillated near $1,650

The gold price and broader financial markets will likely trade based upon news flow related the report from The Guardian that France and Germany “reached agreement to boost the eurozone’s rescue fund to €2tn (£1.75tn) as part of a ‘comprehensive plan’ to resolve the sovereign debt crisis.” The plan is comprised of two parts – the first of which involves giving the EFSF “additional levers enabling it to offer first loss guarantees for bondholders, be they public or private.”

According to the report, “Senior diplomats say this will deliver a fivefold increase in the fund’s firepower – giving it more than €2tn compared with the current €440bn lending capability. The EFSF will in effect become an insurer, thereby overcoming European Central Bank resistance to the idea of turning into a bank.”

Under the second part, euro zone banks would be recapitalized “to meet the 9% capital ratio that the European Banking Authority is demanding after its re-examination of the exposure levels of 60 to 70 ‘systemic’ banks.” Although The Guardian acknowledged that “technical details” of the plan have not been finalized, the framework is in place to deploy additional ammunition to tackle the crisis.

While the markets extended their gains following the EFSF news, the report was soon after refuted by Dow Jones Newswires, which claimed that euro zone officials are still debating the size of the bailout fund.

Looking ahead, the gold price is likely to continue to take its cues from the developments across the Atlantic. A significant increase in the EFSF, as reported today, would inherently involve additional money printing and likely be bullish for the price of gold. Investors with positions tied to the gold price will thus be keeping a close eye on this weekend’s meeting of euro zone finance ministers, as well as the crucial European Union Summit on November 3, to see the specific components of Europe’s plans.

The gold price oscillated near $1,650 Thursday morning. Rumors out of Europe that its leaders were prepared to expand the size of the European Financial Stability Fund (EFSF) have led to increased volatility in gold prices as well as in the broader stock and commodities markets. The UK-based Guardian reported that France and Germany are ready to approve a 2 trillion euro rescue fund for Europe and its ailing banking system.