U.S. DOLLAR gold prices climbed back above $1590 an ounce Monday morning, extending gains from Friday following sharp losses last week, while stock markets also rallied, although the FTSE 100 in London saw smaller gains that other European indexes following news of a downgrade to Britain's credit rating.
"Support [for gold] sits at $1522, the low from December 2011," says the latest technical analysis from Scotia Mocatta.
"A break of that level will do significant damage to the long-term uptrend."
Last week's gold price fall was "largely due to the futures market", according to one analyst.
The gross short position held by speculative traders in gold futures and options on the Comex has neared or exceeded 60,000 contracts only five times before in the last eight years. On these occasions the average six-month change in the gold price, according to analysis by BullionVault today, has then been a gain of more than 28%.
Silver meantime climbed back above $29 an ounce Monday morning, as other industrial commodities also gained and US Treasuries fell.
On the currency markets the Pound fell to its lowest level since July 2010 against the Dollar this morning, dropping more than 1% from Friday's close before recovering some ground as the morning went on, as markets reacted to ratings agency Moody's decision late Friday to strip the UK of its Aaa credit rating.
"The downgrade was expected and priced into credit markets," says a note from Morgan Stanley.
"Hence, we expect only a limited currency response in the short term."
The Sterling gold price ticked back above £1050 an ounce for the first time in just over a week this morning.
The Yen meantime fell to a 33-month low against the Dollar at the start of Monday's Asian trading, following reports that Japan's government is set to nominate Asian Development Bank president Haruhiko Kuroda as governor of the Bank of Japan.
"Kuroda is a fan of a weaker Yen and of deflation bashing," explains Societe Generale strategist Kit Juckes in London.
The government is also reported to be planning to nominate university professor Kikuo Iwata as one of Kuroda's deputies.
"Perhaps thanks to the inclusion of Iwata the market will expect more eye-catching bold easing measures," says Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo.
The world's biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw a further 9.6 tonnes in outflows Friday. Over the whole of last week, the volume of gold held to back GLD shares fell 3.2% to 1280.7 tonnes.
The world's biggest silver ETF iShares Silver Trust (ticker: SLV) by contrast saw its bullion holdings grow by 0.8% to 10,602.8 tonnes.
The amount of gold held by all exchange traded funds tracked by Bloomberg saw its biggest weekly drop since August 2011 last week, falling to a five-month low of just over 2560 tonnes.
"Market participants appear cautious after last week's sharp sell-off," says Nick Trevethan, senior commodities strategist at ANZ.
"While we have downgraded our near-term views, gold prices should accelerate in the second half [of 2013] on improving demand from India and China."
Indian gold industry insiders will be watching for any further measures aimed at reducing bullion imports in this Thursday's budget, after India hiked import duties on gold to 6% last month.
"Suppose you take the worst case scenario and the government completely bans the import of gold.
Do you think that Indian people would stop buying gold?" asks Prithviraj Kothari, director at
Riddhi Sidhi Bullions in Mumbai, adding that such a move would increase demand for smuggled gold.
India is traditionally the world's biggest gold buying nation, a position it held in 2012 according to the most recent World Gold Council data, and has to rely heavily on imports, which contribute to its trade deficit.
A report published by India's central bank earlier this month suggests encouraging people to invest in gold-linked financial products rather than buy gold outright as one of way of reducing the reliance on gold imports. Seeking to increase the amount of gold people deposit with banks was another proposal.
"The government should come out with a voluntary gold deposit program where it won’t ask any questions about the source of gold, and offer an annual interest rate to depositors," suggests Bachhraj Bamalwa, president of the All India Gems & Jewellery Federation.
Kazakhstan and Russia meantime both added to their gold reserves last month for the fourth month running, according to International Monetary Fund data, while Azerbaijan bought gold for the first time in a decade.
Monday sees the second day of voting in Italy's general election, with newswire Reuters reporting a "surge in protest votes" for parties such as the Five Star Movement led by comedian Beppe Grillo.
"There are similarities between the Italian elections and last year's ones in Greece, in that pro-euro parties are losing ground in favor of populist forces," says Riccardo Barbieri, chief economist at Mizuho International in London.
"An angry and confused public opinion does not see the benefits of fiscal austerity and does not trust established political parties."