Gold price scales $1,600 as Europe shoots itself in the foot

Gold scaled the $1,600 an ounce level for the first time in three weeks on Monday as investors, worried about the fallout over an EU move to seize the savings of Cypriots, turn to gold as a safe haven asset.

By lunchtime gold was up $14.20 an ounce at $1,606.80 after weekend reports showed Cypriot citizens clamouring to withdraw money from  bank accounts following a €17 billion bailout deal with the EU reached late on Friday.

While the deal is small by comparison to other bailouts reached with other struggling economies in the European bloc, it called for an €7 billion of the estimated total to come from seizing a portion of saving accounts.

Anger – much of it directed at German chancellor Angela Merkel – has not only been rising among ordinary Cypriots, but also in Russia because many wealthy Russian prefer to stash their cash on the island nation rather than in rouble inside their country.

The haircut – a 9.9% charge on deposits above €100,000 and 6.5% on those with less than that in the bank –also re-ignited fears that the debt crisis on the continent which has been raging for more than two years could lead to a run on banks.

The almost universally-derided deal, which still needs approval from the Cypriot parliament, is now being frantically re-negotiated:

"The madness of this decision about Cyprus is unfathomable,” David Kotok, chief investment officer at Sarasota, Fla.-based Cumberland Advisors, said over the weekend. “Europe has found a new way to shoot itself in the foot.”

Despite its strong showing on Monday gold is still down more than 4% since the start of the year.

Gold is coming off a 12-year winning streak after gaining $113 or 7% in 2012 and a majority of market observers see a good chance the precious metal could make it 13 years in a row.

Image of Angela Merkel from YouTube.