Dollar prices to buy gold hovered just below $1,680 per ounce Friday morning in London – back at levels last seen 10 days ago – as stock markets and industrial commodities ticked lower and government bonds gained.
A day earlier, gold prices jumped 1.6% during US trading – holding onto most of those gains during Friday's Asian session despite the release of lower-than-expected Chinese growth figures.
"We have now closed well above the short-term bear channel," reckon technical analysts at bullion bank Scotia Mocatta.
"The previous resistance level at $1,656 should provide some support," they add, citing current resistance at $1,680.
"[Gold] options activity this week suggests something is brewing," adds a note from investment bank UBS.
"There has been a good deal of interest in upside options, particularly for $1,800 June calls, with gold's safe haven performance on Tuesday the likely catalyst."
Tuesday saw gold gain while stock markets fell.
Heading into the weekend, the cost to buy gold in dollars was heading for a 2.2% weekly gain by Friday lunchtime in London.
Silver prices meantime held steady just below $32.50 per ounce during Friday morning's London trading – heading for a 1.6% weekly gain after posting gains in Thursday's US session.
CME Group, which operates the New York Comex futures and options exchange, has said it will cut its margins on silver futures for the second time since February.
China – the world's second largest source of private gold bullion demand last year – saw its economy grow at its slowest rate in nearly three years during the first quarter of 2012, according to official data published Friday.
Gross domestic product grew 8.1% in Q1 compared to the same period last year, lower than most forecasts. And down from 8.9% growth in the final quarter of 2011.
"What's clear is that the economy is still decelerating and the property sector clearly is deflating," says Yao Wei, Hong Kong-based China economist at Société Générale.
"It seems that property investment has finally started to correct. I think this trend will continue and will drag growth even lower in coming months so we don't think this is the bottom yet. It means more monetary easing will be needed to prevent a sharper deceleration."
China's central bank has cut reserve requirement ratios – the amount banks need to hold in reserve as a proportion of their assets – twice in the last six months. New loans last month were over 1 trillion yuan, their highest level for a year.
Here in the UK, so-called “factory gate” inflation – the price of outputs as measured by the producer price index – fell to 3.6% last month, down from 4.1% a month earlier.
Over in Europe meantime, German consumer price inflation was 2.1% in March – compared to February's 2.3%.
The European Central Bank is more likely to resume buying government bonds on the open market through its Securities Markets Programme than hold a third three year longer term refinancing operation (LTRO), according to a survey by newswire Bloomberg.
"Market stresses will eventually force the ECB to restart the bond program, but it's not imminent," reckons Ken Wattret, chief euro area economist at BNP Paribas in London.
European banks borrowed over €1 trillion in total at the LTROs held in December and February. Banks in Spain – which last month borrowed a record €316.3 billion from the ECB through its other liquidity channels, double February's figure – are thought to have used a lot of this funding to buy Spanish government bonds.
Benchmark yields on Spanish 10-Year bonds dropped from over 6.5% last November to less than 5% earlier this year following the announcement of the LTROs – though they have since risen again and are currently just below 6%.
"There is mounting evidence that the LTRO is pretty toxic for banks and isn't working,” says James Nixon, a former ECB official now chief European economist at Société Générale in London.
"I don't think there will be another one."
"Something is wrong when you load up on assets that were considered risky in November and deemed un-risky in January," adds Royal Bank of Scotland chief European economist Jacques Cailloux.
"Now we're seeing the worst you could have hoped for. As soon as the situation of the sovereign worsens, banks will come under additional market pressure. That's extremely negative."
"Given the return of the debt worries," says a note from Swiss bullion refiners MKS, "gold will likely remain underpinned in the coming sessions. Nevertheless, one should keep in mind that the metal still remains capped by its overhead trend line resistance of $1,680."
"But in order to capitalize on Europe's renewed woes," adds UBS, "gold needs to start behaving as a safe haven again. A one-day performance is not enough."
Ben Traynor is editor of Gold News, the analysis and investment research site of gold ownership service BullionVault. He was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.