Wholesale market gold bullion prices dropped to $1,757 an ounce Monday morning in London – 1.7% off a seven-month high hit briefly last Friday – as stocks, commodities and the euro also ticked lower and US Treasuries gained amid signs of ongoing political stalemate in Europe.
Silver bullion dropped to $33.71 per ounce – 4% down from Friday's high.
Despite the falls, analysts continue to forecast higher prices for gold bullion, while dealers in India report increased physical demand toward the end of last week as local prices came down.
"[There is a] lack of obvious catalysts in the near term to take gold prices higher," says Deutsche Bank analyst Daniel Brebner.
"But I do think we will likely see over the next quarter or so greater policy action both in Europe and China to support growth within those regions...and that could keep the gold price moving higher. We think we will see $2,000-plus gold prices in the first half of next year."
"I'm not worried at all about gold," says UBS analyst Dominic Schnider.
"Despite the short-term retracement, gold is still a buy."
"I think gold should be a portion of every one's portfolio to some degree because it diversifies the portfolio," hedge fund boss Ray Dalio, founder of Bridgewater Associates, told CNBC Friday.
"We have a situation now where we have too much debt, and too much debt leads to printing money...[gold] is the alternative to money."
The aggregate net long position of gold futures and options traders on New York's Comex continued to grow more bullish in the week to last Tuesday, weekly data published by the Commodity Futures Trading Commission show.
Palladium prices meantime fell by more than 3.5% this morning, dropping below $640 per ounce, after the world's largest nickel and palladium miner Norilisk said it plans to cut its investment by 10%, citing a weak outlook for the metal's price.
Eurozone leaders may allow the new permanent bailout, the European Stability Mechanism, to use leverage to increase its capacity to bail out struggling euro members, German magazine Der Spiegel reported Sunday.
The ESM, which is expected to come into effect Oct. 8 and will be capitalized with €500 billion, could be augmented with private sector investment to raise its capacity to €2 trillion, the report said.
"If Europe decided to leverage the ESM – and this discussion is going on – we would of course involve the German Bundestag," Steffen Kampeter, Germany's deputy finance minister, said Monday.
Last October, European leaders agreed to leverage the ESM's temporary predecessor, the European Financial Stability Facility, under arrangements that use EFSF money to absorb losses and give private sector investors partial loss protection.
France's President Hollande and Germany's Chancellor Merkel meantime failed to reach agreement on the timetable for creating a single European banking supervisor when they met over the weekend.
Hollande said he wants the idea implemented "the earlier the better", while Merkel said "it has to be thorough...and then we'll see how long it takes."
The creation of a single banking supervisor is a prerequisite before ESM money could loaned directly to banks, rather than channeled via governments and added to national debt burdens.
Elsewhere in Europe, Greece should be given more time to hit its deficit target, French prime minister Jean-Marc Ayrault said Sunday. Greece's budget deficit is double most estimates at €20 billion, according to Der Spiegel, which reports that Greek prime minister Samaras has asked some of the governments creditors to forgive some debt.
The Greek government failed to reach an agreement on spending cuts with the so-called troika of the European Commission, European Central Bank and International Monetary Fund last week, without which Greece will not receive its next tranche of aid. Troika officials are taking a one-week break from negotiations. Payment of the €31.5 billion tranche could now be delayed until November.
Gold buyers in India have benefited from a "golden era" for the metal over the last three years, while "investments in equities have not even given a simple bank interest rate equivalent", according to a study published by the Associated Chambers of Commerce and Industry of India.
"Net-net, gold has really outdone other asset classes and it is likely to remain an attractive bet as long as uncertainties over the global economy stays," says Assocham's secretary-general DS Rawat.
"Buying interest is much higher than last week," added one Mumbai dealer speaking to newswire Reuters.
"[This is] mostly because the rupee has appreciated substantially."