Wholesale market gold prices climbed as high as $1,594 an ounce during Monday morning's London trading, jumping 1.5% in the first two hours, while Eurozone stocks looked to have stemmed four days of losses despite Greece and Spain seeing negative ratings decisions.
A day earlier, dollar prices to buy gold jumped 2% in two hours during Thursday's U.S. trading.
"The bulls staged a big counterattack," says the latest technical analysis note from Scotia Mocatta, a bullion bank.
"In terms of the longer-term technical [though], the picture is still bearish so long as we remain below last week's high at $1,642."
On the currency markets, the euro recovered some ground against the dollar this morning, after sinking to a four-month low in Friday's Asian session, during which time gold prices held most of the previous day's gains.
Heading into the weekend, gold prices looked set for a slight weekly gain by Friday lunchtime in London, having risen 4% from Wednesday's low.
"We'd like the market to hold at $1,550-$1,560," says Nick Trenethan, Singapore-based senior metals strategist at ANZ .
"If it does that, then I think there's a fair chance we could continue higher towards the $1,600 level, perhaps re-establishing the range there. . .but if the headlines out of Europe continue poorly, we may retest the lows."
Over in India, the world's largest source of gold demand in 2011, "demand has come down [from Thursday]" said Ketan Shroff, director at Mumbai-based wholesaler Pushpak Bullion, speaking this morning.
"People were waiting for a correction and all of a sudden prices went up yesterday. If prices go up further then we may see more fall in demand."
By contrast, the world's largest gold ETF, the SPDR Gold Trust (GLD), added 2.1 tonnes to its gold bullion holdings Thursday, taking them to their highest level this month at 1278.7 tonnes.
Silver prices meantime rallied as high as $28.66 an ounce this morning, though they remained 2% down on the week by Friday lunchtime.
Here in Europe meantime, the European Commission and European Central Bank are planning for scenarios whereby Greece leaves the euro, according to European Union trade commissioner Karel De Gucht.
"A year and a half ago there maybe was a risk of a domino effect," De Gucht tells Belgian Dutch-language newspaper De Standaard.
"[But] a Greek exit [now] does not mean the end of the euro, as some claim."
Ratings agency Fitch however cut Greece's credit rating by a further two notches Thursday evening, reflecting "the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union."
Fellow ratings agency Moody's last night downgraded 16 Spanish banks, including the Eurozone's biggest bank Santander, following its downgrade of 26 Italian banks on Monday.
"Amidst the ongoing euro area debt crisis, the Spanish government's rising budget deficit and the renewed recession, sovereign creditworthiness has declined," said a Moody's statement.
Despite the downgrades, shares in Spanish banks were among the biggest gainers in Friday morning's trading, with Bankia, which was partly nationalized last week seeing its shares bounce by over 30% at one point following losses in recent days.
Spain's government has hired Goldman Sachs to undertake an independent valuation of Bankia, according to Spanish newspaper Expansion. Spain is also expected to name independent auditors later today to determine how big a bailout the banking sector needs.
Yields on 10-Year Spanish bonds meantime eased slightly this morning, though remained above 6%.
"Volumes are light," reports one trader, "just bits and pieces on the screens...there's a [potential] can of worms to be opened [if Greece leaves the euro]and it can become very messy and people don't want to be too involved."
As gold spiked this morning, yields on German 10-year bunds fell to fresh all-time lows below 1.4% at one point, as investors pushed up the price of German government debt.
"To see a return of gold reacting positively to macro stresses is indeed refreshing," says a note from Swiss investment bank UBS.
"But it is still far too early to make any firm conclusions from here that gold has indeed turned the corner. . .[gold] will have to consistently exhibit its safe haven properties, and do so for some time to attract strategic buying."
Gold prices by Friday lunchtime remained 3.3% down from their levels on May 6, when Greek elections failed to produce a government.
European stock markets managed to pare early losses on Friday, with the Euro Stoxx 50 Index – which tracks blue-chip Eurozone stocks, showing a gain on the day by lunchtime following four straight days of losses. Here in London, however, the FTSE was still showing a 0.8% daily fall as we headed towards U.S. open.
Across the Atlantic, stock market futures trading suggested the S&P 500 would open higher Friday, with Facebook set for its first day's trading.
Ben Traynor
BullionVault
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.
(c) BullionVault 2012
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