SPOT MARKET gold prices traded above $1610 an ounce Tuesday morning in London before falling back, slightly below where they started the week, while European markets edged higher following news of better-than-expected German economic growth.
Silver prices briefly rallied back above $28 per ounce before retreating, while other commodities were similarly flat on the day.
"Despite wide daily ranges for the past few weeks due to thin liquidity, the [gold] market remains pretty quiet," says a note from Swiss bullion refiner MKS.
A day earlier, gold prices fell 1% as the Euro edged lower towards the end of Monday's trading, after news of a second legal challenge to the creation of the Eurozone's €500 billion permanent bailout fund the European Stability Mechanism.
Berlin economics professor Markus Kerber submitted an argument that the German Constitutional Court should delay a preliminary decision on the ESM, currently due for September 12, until the European Court of Justice rules on a similar complaint referred to it by the Supreme Court of Ireland.
The German Constitutional Court issued a statement Tuesday saying it does not plan to delay its ruling.
Germany's economy meantime grew by 0.3% in the second quarter of the year – slower than in Q1, but stronger than many analysts expected – according to an initial estimate of gross domestic product published Tuesday.
"The German economy is fundamentally in good structural shape," says Commerzbank chief economist Joerg Kraemer.
"But [it] can't decouple from the recession in the Eurozone, plus the global economy has also shifted down a gear."
French GDP was flat at zero percent in Q2, although many analysts were forecasting a slight contraction.
GDP for the Eurozone as a whole meantime shrank by 0.2% in the second quarter, data from Eurostat show.
"We do not think that Germany on its own can keep the entire Eurozone afloat," says Aline Schuiling, senior economist at ABN Amro.
Here in the UK, consumer price inflation ticked higher last month to 2.6% – up from 2.4% in June – official figures published Tuesday show.
"It is important not to read too much into one month's inflation figures," says Howard Archer at IHS Global Insight.
"The overall trend in inflation currently remains down...nevertheless the move back up in consumer price inflation in July does raise concern that it may not come down as quickly as hoped for."
"Concerns over inflation and potential monetary easing bode well for gold," adds Barclays analyst Suki Cooper.
"[But] the metal is missing the support of a solid floor."
Over in India, traditionally the world's biggest gold buying nation, imports of gold bullion in 2012 could be down 30% compared to last year, according to Bombay Bullion Association president Prithviraj Kothari.
"Demand is very dull even though the festive season is just days away," says Kothari.
"Even jewelers are opting to keep lower inventory," adds one dealer in Mumbai.
"They are worried about slowing rural demand due to a drought."
"Gold prices are holding up very well in the light of weak demand from the jewelry sector and from investors," says Eugen Weinberg, head of commodities research at Commerzbank.
"That bodes well for a price increase that we expect for the end of the third quarter and the fourth quarter."
"Policy expectations will determine the bulk of gold's performance," adds a note from UBS.
"Gold needs a 'big bang' to reignite investor interest, the likely culprit to be policy response from central banks, with US action the key."
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
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