US Dollar Gold Bullion prices fell to $1646 per ounce Friday lunchtime in London – a 1.4% drop from the week's high – as China prepared for the week-long Lunar New Year holiday next week.
Commodities also traded lower, while stock markets were broadly flat overall.
Prices for Silver Bullion dropped to $30.39 per ounce – though still 2.0% up on last week's close.
"As we approach the holiday, the usual Asian physical activity has decreased significantly," says one Gold Bullion dealer in Hong Kong.
"We expect this pattern to continue next week," adds a dealer here in London, noting that with the Shanghai Gold Exchange closed, a large part of the global physical Gold Bullion market will be effectively absent.
"With physical demand providing little support, the Dollar continues to largely dictate movements in gold," says Marc Ground, commodities strategist at Standard Bank.
Heading into the weekend, gold was up slightly on the week in Dollars Friday lunchtime, but down 1.4% in Euros.
Italy's banks were the biggest borrowers at last month's 3-Year longer term refinancing operation by the European Central Bank, the Financial Times reports. Italian banks borrowed around €50 billion of the €489 billion lent by the ECB, in a liquidity operation that attracted over 500 European banks.
"The market has underestimated how meaningful the scheme could be to avert a credit crunch," reckons Morgan Stanley's Huw van Steenis, who compiled the LTRO data.
ECB president Mario Draghi said last week that as a result of the operation, there has been a reopening of some credit markets "which had completely shut down".
The amount of borrowing at the next LTRO, scheduled for the end of next month, is expected to be lower, Draghi said yesterday.
"This is about buying time," reckons John Davies, London-based fixed-income strategist at German bank WestLB.
"It's only when the market believes Italy and Spain have returned to sustainable debt levels that you can say the crisis has truly ended."
Yields on Italian 12-month Treasury Bills have fallen from 4.5% to just over 3.5% since last month's LTRO, while 10-Year bond yields are also down, though more slightly – dropping from 6.7% to just under 6.3% this morning.
Yields on 30-Year debt however have edged higher – rising from 6.7% to 6.9% since the day of the LTRO.
"For the time being, the ECB's operations are working at the short end [of the yield curve]," says Werner Fey, fund manager at Frankfurt Trust Investment, which oversees around €6.5 billion worth of assets.
"But for the long end, we have a lot of uncertainties around...the government problems for the Euro sovereigns are unresolved."
The latest draft of the fiscal treaty agreed at last month's European Union summit contains reference to an "automatically" triggered "correction mechanism" for cases where national budget deficits deviate from target, newswire Bloomberg reported Friday.
Over in India, the government has amended the changes to gold import duties announced Tuesday. Refined gold will still be taxed at 2% of its value, but unrefined gold will only be subject to a 1% levy.
As well as raising revenue, the Indian government hopes to "discourage imports so that the Rupee steadies against the Dollar," according to one senior government official quoted by newspaper India Today.
"Encouragingly, we are seeing some Indian [gold] buying coming through," noted Standard Bank's Ground Friday morning, "although this could easily evaporate if the Rupee weakens, given the current price sensitivity of the country's buyers."
Turkey meantime has offered "one illustration of the increasing use of gold as a financial tool," says the latest precious metals note from French investment bank Natixis.
"It emerged this week that the decision by the Turkish central bank to allow the use of gold within banks' reserve requirements led to an increase in local banks' gold holdings of 63 tonnes (during October and November) to 179 tonnes," Natixis says.
"Around the world, banks have expanded their use of the gold market as a means of securing access to US Dollar financing."
Preliminary manufacturing data for China – the world's second-largest source of private Gold Bullion demand after India – suggests the sector continued to contract in December. HSBC's purchasing managers index rose slightly to 48.8 – with a reading of more than 50 required to imply sector expansion.
Here in the UK, China's sovereign wealth fund has bought a 9% stake in Thames Water, the firm that supplies drinking water to London and much of southern England.
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