The gold price moved higher Sunday night, rising $2.10 to $1,371 per ounce.  After sinking as low as $1,353 early Friday morning, the price of gold bounced on the back off a weaker than expected U.S. jobs report and weakness in the euro currency.  The 3.7% decline last week in the gold price was its worst such stretch since a 4.3% drop in late May of 2010.

Alongside the gold price, gold stocks similarly halted their recent streak of weakness last Friday.  The Market Vectors Gold Miners ETF (GDX), a widely-held basket of gold stocks, finished unchanged at $56.74 per share.  Notable advancers included GDX components Agnico-Eagle Mines (AEM), IAMGOLD (IAG), and Kinross Gold (KGC).  Shares of AEM, IAG, and KGC settled higher by 1.0%, 1.5%, and 0.2%, respectively.

The gold price and gold stocks stabilized despite modest strength in the U.S. Dollar Index (DXY), which finished with a gain of 0.3% at 81.08.  Although the dollar initially fell against most currencies after the disappointing jobs data, it managed a 0.7% gain against the euro amid escalating sovereign debt concerns in Europe.  The euro slipped 90 basis points to 1.2913 against the dollar on Friday, its lowest level since September 15.  Late Sunday night the euro fell even further, dropping below 1.29 against the dollar.

The euro opened this week where it left off last week – lower – ahead of this upcoming week’s Portuguese and Spanish bond auctions.  The yield spread between Portuguese bonds and its counterparts in Germany widened by 62 basis points to 4.32% as the nation plans to sell 1.25 billion Euros of government bonds to help finance its mounting budget deficit.  Credit default swaps (CDS) on Portugal’s sovereign debt climbed 10 basis points to 535, the highest level since November 3.   Spain’s CDS rose 4.5 to 353, according to data provider CMA.

Helping to stem the selling pressure on euro has been verbal support from China’s policy makers.  Earlier today, the head of China’s State Administration of Foreign Exchange (SAFE), Yi Gang, reiterated the country’s commitment to invest in the euro currency and in the sovereign debt of European countries.  “The euro and European financial markets are important parts of the global financial system.  They are one of the most important investment territories for China’s foreign exchange reserves in the past, present and future,” Yi stated.  The euro-denominated gold price has risen 34% over the past year while the gold price in terms of the U.S. dollar has gained 21%.

Although policy makers across the globe have publicly voiced support for both debt-plagued individual nations and the international monetary system as a whole, the underlying structural issues that helped cause the financial crisis remain.  Rising interest rates and widening credit spreads in Europe – as well as the ascent in the gold price – are symptoms of waning confidence in fiat currencies.  Central bankers and politicians refuse to address the underlying problem of excessive debt levels, choosing to kick the can down the road as opposed to implementing debt restructuring – which would lead to a healthier economy in future years despite the short-term pain.

The message that sovereign debt investors should not have to suffer the consequences of their poor investment decisions is a dangerous precedent that distorts the system.  Until the balance sheets of sovereign nations are credibly repaired and debt levels brought down, confidence in paper currencies will continue to wane and the uptrend in the gold price will likely remain firmly in place.