Gold rises on EU pledge, eyes worst quarter in 8 yrs

Gold on course to post its first gain in five months

Gold rose more than 1% on Friday, tracking a surge in the euro after European leaders moved to bring down soaring borrowing costs in Italy and Spain, helping ease fears over the region's debt crisis.

But gold is still on track to post its worst quarter since 2004, as a growing global economic slowdown from Europe to China pushed investors to safer havens such as the dollar.

Spot gold was up 1.1% at $1,568.46 an ounce by 0700 GMT, after hitting a session high of $1,571.89. U.S. gold gained 1.2% to $1,568.90.

Gold jumped as the dollar wilted against the euro after leaders of the 17-nation euro zone agreed the region's rescue funds could be used to stabilise bond markets without forcing countries that comply with EU budget rules to adopt extra austerity measures or economic reforms.

That provided a big relief to investors in markets from commodities to equities, who had low expectations the ongoing summit of European leaders would yield concrete solutions to solve the euro zone debt crisis now running into its third year.

"It still falls short of a concrete solution, but the removal of severe pessimism over what's going to come out of the EU summit is driving markets higher," said Vishnu Varathan, market economist at Mizuho Corporate Bank.

"These are very welcome steps taken forward in terms of addressing tail risks and the imminent crisis triggered by the banking sector that may be knocking on the door."

First gain in 5 months

Friday's rise has helped gold erase losses for June, and it is on course to post its first gain in five months.

But for the second quarter, bullion is still down about 6%, its steepest loss since 2004.

Gold has fallen more than 12% from the 2012 peak of around $1,790, and 18% from an all-time high above $1,920 reached in September 2011.

There is strong support for gold at $1,523, and if that holds, the precious metal may have the momentum to match last year's high, said Lynette Tan, an analyst at Phillip Futures.

"In the long run we're still bullish on gold. It's still likely to hit last year's high of $1,920. The global economy is not doing well and we expect safe-haven demand to be back for gold," said Tan.

What would support gold's strength in the second half of 2012 would be possible further weakness in the dollar, with the U.S. central bank likely to support a patchy recovery in the world's top economy with more stimulus measures, analysts say.

The physical market also saw some buying from jewellers from China and other parts of Asia, said Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.