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Gold returns to $1,100 after EU leaders agree on Greek bailout

Gold recovered after falling for the better part of the week on weakness in the euro amid uncertainty over Greece’s fiscal situation coupled with rating agency Fitch’s downgrade of Portugal’s sovereign rating.

The outlook for Greece’s debt crisis seemed to be worsening by the day during the better part of the week as EU leaders were nowhere near an agreement on a bailout package for the country despite repeated calls from the European Commission to find common ground on aid for the troubled country. Late last week, President of the European Commission Jose Manuel Barroso called on the euro zone states to agree on a bailout package for the troubled country, which is estimated to need to secure some €50 million this year or face a default.

These calls faced adamant opposition from German Chancellor Angela Merkel, who insisted that Greece did not need aid from the EU and would have to turn to the International Monetary Fund (NYSE:IMF) before asking fellow euro zone states for help. She added that Greece’s debt woes were not on the agenda of the upcoming EU summit in Brussels.

Merkel’s stance enjoyed broad public support in Germany as opinion polls continued to show strong opposition to Germany’s participation in any bailout deal.

Barroso was supported by other euro zone states, notably France and Italy, however, French President Nicolas Sarkozy and Merkel met later in the week and agreed on a mechanism to provide financial aid for Greece with the participation of all 16 euro zone states and reportedly heavy involvement of the IMF. President of the European Central Bank (ECB) Jean-Claude Trichet muddied the outlook for a solution, warning against the IMF’s participation in a bailout deal for Greece.

The two-day summit, which kicked off on Thursday, did result in a solution as EU leaders agreed to loan up to €22 billion to Greece jointly with the IMF in the event that the country is unable to raise enough money in the market.

The agreement provided immediate relief to the euro, which hit ten month lows against the US dollar this week and has under heavy pressure from the unravelling European debt crisis for the past couple of months. The deal, however, did not improve the long-term outlook for Greece’s debt and the gains in the euro and European stock markets were limited.

Middle through the week, rating agency Fitch cut Portugal’s sovereign debt to AA with a negative outlook after warning of a possible downgrade should the ongoing fiscal consolidation continue at a slow pace and prove insufficient.

India’s unexpected interest rate hike and China’s rising inflation rate also contributed to the weakness in precious metals. Europe’s single currency fell to ten month lows against the US dollar and record lows against the Swiss franc. Gold is seen as a riskier alternative and usually moves inversely to the American currency.

Meanwhile, holdings in the world’s largest gold-backed exchange fund SPDR Gold Trust (NYSE: GLD) increased by over 4.5 metric tons to 1,120 tons yesterday, suggesting higher demand for the yellow metal.

The yellow metal fell below US$1,090/oz when the arguments between Germany and EU commissioners reached their peak middle though the week, however it returned to US$1,090/oz and then above US$1,100/oz at the end of the week after the agreement was announced.

Gold currently stands at US$1,106/oz. Silver has also shown improvement, rising to US$16.87/oz, while platinum declined to US$1,595/oz.

Gold miners fared well this week as both Randgold Resources (LSE: RRS) and peer from FTSE 250 Petropavlovsk (LSE: POG) both posted gains. Silver miners followed as blue chip Fresnillo (LSE: FRES) and Hochschild Mining (LSE: HOC) also improved. Platinum miner Lonmin (LSE: LMI) made strong advances during week, while peer midcap Aquarius Platinum (LSE: AQP) was flat.

Large and Mid Cap News

Silver producer and FTSE 250 constituent Hochschild Mining (LSE: HOC) reported full-year results which showed a production rise of 8% to 28.2 million attributable silver equivalent ounces, slightly above the group's 28 million target for the period.

Full year results from mid-tier iron ore producer Ferrexpo (LSE:FXPO) helped lift the company’s share price this week.  Shares in the Ukraine focused company have delivered a solid performance in 2010, rising more than 50% as investors begin to price in a recovery in demand for iron ore and speculation of significantly higher contract prices this year.

AngloGold Ashanti (LSE, ASX: AGG; NYSE: AU) has entered into a definitive JV (joint venture) agreement with l'Office des Mines d'Or de Kilo-Moto (OKIMO) over the development of the Ashanti Goldfields Kilo (AGK) project in the Democratic Republic of Congo (NYSE:DRC) and the transfer of the exploitation permits to AGK.

Small Cap News

In a note on Discovery Metals (AIM: DME), Brisbane-headquartered stockbroker RBS Morgans said the recently completed AU$19m investment and off-take agreement from Transamine are further steps in the development of the Boseto copper project in Botswana.

Nyota Minerals (AIM, ASX: NYO) has appointed Peter David Pettman as a non-executive director, in which capacity he will perform the role of deputy chairman and will chair the remunerations committee.

Central China Goldfields (AIM: GGG) has notified Auzex Resources Ltd (ASX: AZX) of its intention to exercise its option to acquire 50 percent equity in the Bullabulling gold project, located in the Coolgardie area of the Eastern Goldfields of Western Australia.

Frontier Mining (AIM: FML) has secured the extension of the licence period over the Koskuduk, Baitimir, Naimanjal, Beschoku and associated satellite deposits from Kazakhstan’s Ministry of Energy and Mineral Resources (MEMR), which has allocated the company 12 months to confirm its reserves into the State Reserve Balances and to submit its development working programme for those reserves.

In response to an article in the Botswana Guardian, Firestone Diamonds (AIM: FDI) said that the Jwaneng Tailings project remains on schedule to commence production at the end of 2011, with full production to be reached in 2012. The company said the articles’ assertion that the completion had been postponed is incorrect, and Firestone has confirmed this with its domestic partner, Debswana.

Rambler Metals and Mining (TSX-V: RAB, AIM: RMM) reported reduced losses per share for Q2 after reducing exploration expenditure to conserve cash and now intends to further advance its aggressive exploration programme and continue to delineate near term underground resources, while focusing on the development of the Ming mine after securing an off-take agreement for the Newfoundland-based copper and gold project.

Forte Energy NL (AIM, ASX: FTE) has reported further high-grade assay results received from a second group of 21 holes drilled at the at Bir En Nar uranium project in Mauritania, West Africa, which are consistent with assay results from the first eight holes announced on 23 February 2010 that showed grades up to 4,890 parts per million U3O8 and values of more than 1,000 ppm U3O8 across all holes.

Further to the company announcement dated 2 February 2010, Coal of Africa (AIM, ASX, JSE: CZA) has announced that the New Order Mining Right (NOMR) granted by the South African Department of Mineral Resources (DMR) for its 100% owned Vele coking coal project near Musina in the Limpopo Province has now been executed.

South American focused gold explorer and developer Patagonia Gold (AIM: PGD) reported more exceptionally high grade results from ongoing drilling at the Cap-Oeste gold-silver project in Argentina’s Santa Cruz province.  Santa Cruz has become a hot bed of exploration activity in recent years thanks to several discoveries in the province and a supportive mining code.

Platinum Australia (ASX: PLA) (AIM: PLAA) has released the latest results from the resource definition drilling program on the Rooderand Platinum Project located on the western Limb of the Bushveld Igneous Complex (BIC) in South Africa.

Ovoca Gold (AIM: OVG, FSE: OVX) has completed the resampling and testing of previously drilled core material on the Oleninskoye deposit on the Kola peninsula in Russia which was drilled to a depth of 285 meters.  It said the new data confirmed that the potential of the ore body is higher than thought prior to the retesting programme.

London-based stockbroker Fairfax Securities said that Discovery Metals (AIM: DME, ASX: DML) has a strong management team that has consistently delivered on promises, following recent news-flow. The company recently secured a AU$19m investment and off-take agreement with an international raw materials trading company, Transamine.

Edison Investment Research has started coverage of Goldplat (AIM: GDP), which it called almost unique among gold producers, as it recovers rather than mines gold. According to Edison, Goldplat’s stockpile of ore is constantly evolving, rather than slowly depleting.

Nyota Minerals (AIM, ASX: NYO) has reported positive assay results from the first 18 reverse circulation (RC) holes of an ongoing drill programme at the Tulu Kapi gold project in Ethiopia. The company said that an update and upgrade of the existing Tulu Kapi Inferred Resource of 690,000oz remains on track for completion during the second quarter of 2010.

Rusina Mining (ASX: RML, AIM: RMLA) has announced the issuance of two additional Environmental Compliance Certificates (ECCs) for the Acoje nickel-chromite project on Luzon Island in the Philippines.

Ariana Resources (AIM: AAU) is gearing up for an exploratory drilling campaign at its Kiziltepe gold prospect in Turkey after results from a geophysical programme located several anomalie, and defined a significant exploration upside on the prospect.

Gemfields (AIM: GEM) has informed investors of a number of major shareholder transactions, with the company’s largest and third largest shareholders buying shares in the company. The gemstone producer has been fairly active in recent weeks, with its latest record breaking auction being one of the most notable developments.

Düsseldorf-headquartered Tantalus Rare Earths AG (XETRA: TAE) has appointed an experienced investment banker, Stephen Forman, as the company’s new chief executive. Tantalus said that the board unanimously selected Forman based on his extensive background in the financial community and his excellent contacts to investors worldwide.

Since ITOCHU Corp (TYO: 8001) has announced it is buying a 15% stake in Kalahari Minerals (AIM: KAH), two of Kalahari’ significant shareholders, Emerging Metals (AIM: EML) and Regent Pacific (HKG: 0575), have confirmed that they agreed to sell their entire shareholdings to the major Japanese conglomerate.

Baobab Resources (AIM: BAO) said it continued to strengthen its foothold as a prominent exploration company in Mozambique during the first half, being focused on the Tete iron-vanadium-titanium project. Tete has been confirmed as a high potential project and Baobab plans to rapidly advance its development during the coming year, with feasibility studies targeted within 12-18 months.

Solomon Gold (AIM: SOLG) said the Newmont joint venture is now moving forward at a faster pace than expected.  Despite a slow start to the proposed drilling program - as more geological data was gathered and interpreted -, in just the second year of the agreement, Newmont has decided to spend in excess of A$5 million on exploration.

Herencia Resources (AIM: HER) reported promising high grade results from the first three holes in its current diamond drilling campaign at the Paguanta zinc-lead-silver-gold  project in Chile, extending the high-grade Cathedral vein by at least 80 metres to the west of the current resource and confirming a new vein south of Cathedral.

Kalahari Minerals (AIM: KAH) announced that a major Japanese conglomerate, the ITOCHU Corporation (TYO: 8001), has agreed to acquire a 15% stake in the company. ITOCHU is one of the largest uranium traders in the world, and according to Kalahari, the transaction significantly solidifies and strengthens its shareholder base.

Disclosure: The author holds no positions in the company