‘Fresh Liquidation Expected’ if Gold Falls Below $1,690

Gold prices briefly fell back below $1,700 per ounce for the second time in a week during Monday morning's London trade, as stocks, commodities and the euro all dipped lower before recovering some ground, following news that China has cut its official target for growth.

Silver prices dropped to $34.06 per ounce – 2.2% down on Friday's close – before making up some of the loss.

Gold prices did manage to stay above last week's low of $1,691 per ounce, hit after Fed chairman Ben Bernanke's appearance before Congress was followed by a $100 an ounce gold price drop.

"We would expect fresh liquidation of long gold positions on a move below $1,690," says the latest technical analysis from bullion bank Scotia Mocatta.

Well-known investor and Gloom, Boom & Doom Report publisher Marc Faber has said that gold could fall below $1500 an ounce, though he remains a gold owner and dismisses the notion of a gold bubble.

China has lowered its official growth target from 8% annual growth to 7.5%. China was the world's biggest gold buyer in the fourth quarter of last year, according to World Gold Council data.

"China's economy is encountering new problems," premier Wen Jiabao told the annual National People's Congress in Beijing on Monday, adding that "expanding consumer demand" is his first priority.

"We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people's ability to consume," Wen said. Several economists have argued recently that China's economy needs to rebalance towards domestic demand.

China's new 7.5% growth target "indicates the lowest level that the government is comfortable with," explains Michael Buchanan, Hong Kong-based chief Asia-Pacific economist at Goldman Sachs.

"[It] is also a signal to local officials that they shouldn't solely focus on the rate of expansion...China's trend growth rate is coming down but it's still higher than [the new target], more like around 9%."

Wen, along with China's president Hu Jintao, is among seven members of Beijing's nine member Politburo Standing Committee due to be replaced in October.

In Moscow meantime, Vladimir Putin has declared victory in Russia's presidential election, a victory which would see him take over as president again after four years as prime minister.

"We won in an open and honest fight," Putin told supporters, responding to allegations of electoral fraud.

Greece's €206 billion bond swap was in doubt Monday with private investors appearing reluctant to participate, the FT reports. As part of its €130 billion bailout deal agreed last month, Greece's private sector creditors have been asked to take losses of some 70% on their bond holdings.

If less than 75% of bondholders take part, Greece may have to resort to the collective action clauses inserted retroactively by the Greek government, which would force hold-outs to take part – a move which could yet trigger credit default swap payments. If less than 66% agree to take part, the CACs themselves would become invalid, putting the whole deal in doubt.

European banks, which collectively borrowed just under €530 billion from the European Central Bank at last week's longer term refinancing operation (LTRO), deposited a record €821 billion with the institution over the weekend, ECB figures show.

Euribor interest rates, at which banks lend Euros to each other, have fallen significantly since the ECB conducted its first LTRO in December.

"Clearly money market conditions have stabilized," says Barclays Capital interest rate strategist Moyeen Islam.

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