Spot gold prices touched a seven-session high just shy of $1,600 per ounce in London's wholesale market early Monday, falling back to last week's finish at $1,593 as European stock markets rose for the first time in 10 days.
Spanish and Portuguese bond prices fell again, but the euro held tight around $1.2750 after the weekend's G8 summit of developed-world leaders vowed to "take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses."
German and US government bonds ticked lower, nudging interest rates higher.
Silver prices slipped 1% to $28.50 after erasing last week's 7% plunge to finish unchanged.
Spot gold for immediate physical settlement this morning traded 4.3% above last Wednesday's 5-month low at $1525 per ounce.
"Spot gold rallied [last week] on speculation that the Feds will come through with a QE3 package," says Commerzbank in Luxembourg.
"Renewed physical demand, deteriorating European conditions, and a poor Philly Fed print [on the manufacturing index] seemed to be the catalyst for the rebound," reckons refinery and finance group MKS's Australian office.
"In the next few weeks leading up to the Greek election, there will be plenty of opportunities for people to worry about the European debt situation and the health of the euro in general," says Reuters, quoting David Jollie at Japanese trading conglomerate Mitsui, who believes such worries should prove "positive" for gold.
"The potential for a secession in Europe and/or a US fiscal crisis represent significant upside risks to gold prices," says the latest Commodities Weekly from French investment-and-bullion bank Natixis, forecasting a major monetary response should fiscal and political problems worsen.
"As popular as it might be in some quarters to rule out [a third round of US quantitative easing], I do not think this option can be taken off the table," said Federal Reserve Bank of Atlanta President Dennis Lockhart in a speech in Tokyo this morning.
"QE3 will work under the right circumstances," said Lockhart – a voting member this year on the US central bank's policy committee. "But I don't believe such circumstances prevail at this time."
New data released Friday by US regulator the Commodity Futures Trading Commission show speculative traders in gold futures and options more than doubling their bearish bets over the last month.
Net-net as a group, so-called “large speculators” – meaning those professionals not hedging a physical position for miners, refiners or bullion banks – cut their overall bullish betting by the equivalent of $3.2 billion in the week ending last Tuesday.
In volume terms, the speculative "net long" position of bullish minus bearish bets fell to the equivalent of 322 tonnes, the lowest level since December 2008, when the price of spot gold turned higher amid the collapse of Lehman Bros. after falling by one-third from the collapse of Bear Stearns that March.
"We do not believe the removal of trades predicated on additional liquidity and further unconventional monetary policy signal the end of the bull market in gold," says a note from analysts at investment bank Morgan Stanley today.
"We retain a positive view on gold," agrees a note from London market-maker Barclays, "given the ongoing market uncertainty, broader macro backdrop remaining positive and continued central bank gold buying."
Now the world's #1 gold consumer nation, China "should continue to implement a proactive fiscal policy and a prudent monetary policy, while giving more priority to maintaining growth," said current Chinese premier Wen Jiabao in a weekend interview.
Already moving to boost bank lending, Beijing may announce fresh stimulus measures shortly, according to the China Securities Journal – like Wen's comments, also published by the official Xinhua News Agency.
"There are prominent problems seen in areas including insufficient demand and falling profits in some industries and companies," Wen was apparently told by bureaucrats from 6 different provinces at a weekend meeting.
"Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west," Bloomberg News today quotes Su Hui, a vice-president at the state-backed China Automobile Dealers Association.