Dollar Gold Prices rallied to $1772 per ounce Thursday morning in London – 1.7% off this week's high – while European stock markets also recovered some ground as rumors spread that the European Central Bank might intervene in the debt crisis.
Silver Prices climbed to just below $34 per ounce around lunchtime – 3.8% below this week's high – while commodities were mixed and major government bond prices fell.
Earlier in the day, Gold Prices fell throughout Thursday's Asian trade – hitting a low of $1754 per ounce, having risen to $1798 the day before.
"Flow wise we saw nothing but selling today," says one Hong Kong bullion dealer.
"Gold's flirtation with $1800 has ceased for the time being," adds a note from the London desk at Mitsui Precious Metals.
"The selling seems largely motivated by a need for cash to cover losses in equities," the notes adds, though it also points out that as Gold Prices rose by over $120 in ten days, "a correction is not entirely surprising".
"The wider picture still looks bullish, however, so another test of $1,800 before the weekend is a strong possibility."
Italy's Treasury Department successfully auctioned €5 billion worth of 12-Month Treasury bills Thursday morning – paying an average yield of 6.087%, a Euro era high. At the last 12-month T-bill auction a month ago, the Treasury sold €7 billion worth at a 3.570% average yield.
Yields on 10-Year Italian bonds fell back below 7% this morning.
Demand at the auction was "solid", the Wall Street Journal reports – with the ECB buying Italian debt, according to a trader cited by the WSJ.
"In all likelihood...[policymakers] will have to try to find some sort of nuclear button to turn back the markets," says a note from Standard Bank analysts Steve Barrow and Jeremy Stevens this morning.
"[One thing that] could certainly work to end the crisis [would be] if the ECB promised to buy unlimited amounts of debt from the outset. Will it sign up to this? ECB members argue that such action is prohibited but...crises call for rule books to be ripped up and this is one rule that could become a casualty."
"The ECB will be drawn [in] like everyone else by the weight of gravity," agrees a Eurozone official quoted by Reuters.
However, "the situation has deteriorated so dramatically a large-scale asset buying by the ECB would not necessarily be a panacea," reckons Alberto Gallo, senior European credit strategist at Royal Bank of Scotland.
"I do not think the ECB on its own could bring back the market to the point before Italy succumbed."
Yields on 10-Year French government bonds meantime rose above 3.3% Wednesday morning – still below their one month high hit just before last month's Euro Summit.
However, the spread over 10-Year German bund yields hit a 21-year high at 154 basis points (1.54 percentage points).
"The contagion to core countries is already visible in France," reckons Gerard Moerman, head of rates and money markets at Aegon Asset Management, who manages €20 billion of assets.
"Lots of investors don't trust it anymore or want to get rid of the exposure...we've seen some of our clients wanting to leave France."
The world is in danger of a "lost decade" of stagnant economic growth, International Monetary Fund managing director Christine Lagarde told a forum in Beijing yesterday.
"If we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand,"
In Berlin meantime German chancellor Angela Merkel called for "a breakthrough to a new Europe".
"That will mean more Europe, not less Europe...a community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply cannot survive."
"If the leaders of the Eurozone want to save their currency," British prime minister David Cameron said Thursday, "then they – together with the institutions of the Eurozone – must act now. The longer the delay, the greater the danger."
Euro Gold Prices were flat throughout Thursday morning, zig-zagging either side of €1300 per ounce, as the Euro recovered some ground against the Dollar following yesterday's 2.2% drop.
"Looking at what is going on in Europe a further round of liquidation across commodities, including gold, is possible," warns Tom Kendall, precious metals research analyst at Credit Suisse.
Here in London, the Bank of England's Monetary Policy Committee voted Thursday to keep its interest rate o0n hold at 0.5% – where it has been since March 2009. The MPC also voted to maintain its quantitative easing program at £275 billion.
Over in the US, Jefferson County, Alabama, has filed for the largest municipal bankruptcy in US history, after country officials failed to reach agreement with creditors to refinance $3.1 billion of borrowing. The creditors – which include investment bank JP Morgan – bought bonds issued by Jefferson County in order to finance a sewer building project.
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