The Gold Price poked its head above $1900 per ounce Monday morning in London – its first breach of that level in nearly a fortnight – before easing back towards lunchtime.
The Silver Price in contrast fell to a low of $42.42 per ounce – 1.9% off Friday's close – while stocks and major commodities were also down following news of US legal action against banks and yet another election defeat for Germany's ruling party.
The FTSE was down 2.2% by lunchtime, while Germany's DAX had lost 3.7%. Shares of European banks hit a 29-month low.
"As European woes reclaim center stage...these factors will support gold in the coming weeks," reckons Edel Tully, precious metals strategist at UBS.
Service sector growth meantime slowed in Germany, the UK and the Eurozone last month, according to data published this morning.
"Fears of recession [are] back on the table," says a note from Swiss precious metals group MKS.
On the currency markets the Euro slid below $1.42 before rallying, while the Euro Gold Price set a new all-time high of €1344 per ounce – 1% above last month's previous high.
Over in Germany, Chancellor Merkel's CDU Party lost its sixth regional election of 2011 on Sunday.
"[Merkel's defeat] simply adds to the sense that saving the Euro is going to be made more difficult by opposition from within Germany," says Sebastien Galy, senior foreign exchange strategist at Societe Generale in London.
Germany's highest court is due to issue a verdict Wednesday on whether or not Eurozone bailouts have breached the country's constitution.
"Countries that need help are getting tired of reforms," reckons Kimihiko Tomita, foreign exchange manager at State Street.
"Countries that are paying money are getting tired of helping...the outlook of the Eurozone bailout scheme is becoming a bit shaky."
"There is a growing expectation in the market that we will have to get some policy response from the ECB at some stage," says Standard Bank's de Wet.
"Either they will have to cut rates, or they will have to be more accommodating...whatever that will be, it is more likely to be positive for gold than not."
Over in the US, the Federal Housing Finance Agency – which oversees government-backed mortgage firms Fannie Mae and Freddie Mac – filed 17 lawsuits on Friday against major investment banks.
The FHFA is suing the banks over the alleged mis-selling of $196 billion in residential mortgage back securities.
Here in the UK – where the Sterling Gold Price also hit a new record high at £1178 per ounce – there is a "strong case" for the Bank of England to focus a second round of quantitative easing on lowering banks' high funding costs, according to a note from Kevin Daly, economist at investment bank Goldman Sachs.
"However, the Bank is unlikely to choose this option, as it believes that credit market intervention of this type should be the responsibility of the fiscal authorities."
In China meantime the Shanghai Gold Exchange announced plans on Monday to raise its margin requirement on gold forward contracts for the third time in a month. The new higher margin requirements will take effect this Friday, 9 September – the day before the start of the mid-Autumn festival, which sees the SGE closed on Monday 12 September.
"Given that the last margin hike sparked a $100 liquidation in gold, this could be a rare bearish issue in an environment that remains otherwise bullish for gold," reckons a Gold Bullion analyst here in London.
"It's not going to have a major effect," counters Standard Bank commodity strategist Walter de Wet interviewed by news agency Reuters.
"A lot of demand we see out of Asia is physical rather than speculative."
"Margin and trading limit will revert back to normal after people come back from long holiday on 14 September," adds a dealer in Hong Kong.
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