What You Need to Know in Markets: Gold Price, European Debt

NEW YORK ( TheStreet) -- European Commissioner Olli Rehn said the eurozone is nearing a consensus on plans to stabilize the region's debt crisis during a speech in Dublin, helping offset uncertainty from the prior day when Slovakia become the only country to vote against a July 21 agreement to expand the European Financial Stability Facility

All 17 eurozone members must approve the expansion before it can pass. A second vote is expected later this week, and the largest party that opposed the plan, Smer, said it will support the expansion in the second round, ensuring it will pass, according to a Bloomberg report.

European leaders are scrambling to reach an agreement on the EFSF by Oct. 23 when a summit is planned to discuss a package of measures designed to stabilize the eurozone and put contagion fears to rest. Policymakers are expected to consider a recapitalization of its banks in addition to a unified support plan for Greece.

Gold prices were catapulting towards $1,700 an ounce on a weaker U.S. dollar and momentum buying.

Gold for December delivery was adding $19.70 at $1,680.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,693.90 and as low as $1,662 an ounce while the spot gold price was up $19, according to Kitco's gold index.

One belief emerging is that both stocks and gold are moving higher on hopes that Eurozone leaders will come up with a plan to recapitalize banks. Stocks are reacting to the possibility of decisive action from Europe to contain its sovereign debt crisis while gold is moving higher on the assumption that the European Central Bank will be forced to pump more money into the system.

Minutes from the Federal Open Market Committee's two-day meeting in late September showed that Committee members reviewed a range of monetary policy tools including another round of asset purchases before settling on its "Operation Twist" plan. The Fed presidents also acknowledged the tenuous nature of the current economic environment.

The minutes revealed that policymakers were split between policy tools. Some felt that options would only provide temporary relief, although most agreed that the options could provide additional support for the economy by lowering long-term interest rates and loosening tight financial conditions. The minutes also showed that some Committee members are still considering another asset purchase plan if economic conditions warrant stronger support for the recovery. Others, however, felt such a move would be more likely to raise inflation than spur economic activity.

Policymakers eventually settled on a shift of maturities in the System Open Market Account, otherwise known as Operation Twist. The central bank plans to purchase $400 billion of longer-term Treasury securities and sell an equal amount of securities with maturities of three years or less.

Committee members Richard Fisher, Narayana Kocherlakota and Charles Plosser voted against the action because they disagreed with providing additional monetary policy accommodation at the time.

Participants continue to expect a mild pickup in growth through the next few quarters but acknowledged that the uncertain global environment and weak employment environment have "left the recovery more vulnerable to negative shocks."
This article was written by a staff member of TheStreet.