Spot marketprices for buying gold rose to $1698 an ounce Friday morning, in line with where they started the week, while stock markets also rose, following yesterday's announcement of the European Central Bank's bond market intervention plan.
US Treasuries fell, while commodities were broadly flat, with the exception copper, which posted gains. Copper traders are now more bullish than at any time since last October, according to a survey by newswire Bloomberg, which sites "mounting speculation" about central bank stimulus measures, such as a third round of quantitative easing (QE3) from the Federal Reserve.
A day earlier, gold hit its highest level in six months at $1713 per ounce Thursday, although it fell following the publication of a stronger-than-expected ADP Employment Report, a precursor to today's official August nonfarm payrolls release.
"There is definitely long liquidation going on after the ADP number," says one trader in Singapore.
"People spent the whole of yesterday buying gold and it is a bit overcooked up here. Now we have good data and the market is struggling to see how it can get a bad [nonfarm] payrolls data."
"The consensus expectation for today's nonfarm payrolls is 130,000 [jobs added in August]," says a note from Rabobank this morning, "although in reality it may [now] have been revised upwards. . .the final clues for today's nonfarm payrolls were positive, at least for the economic recovery, not for the chances of QE3."
Prices to buy silver meantime climbed to $32.40 per ounce this morning—on course for a 2% weekly gain—while on the currency markets, the Euro rose to its highest level in more than two months, a day after ECB president Mario Draghi announced the new Outright Monetary Transactions program, aimed at tackling the Eurozone crisis by buying distressed Eurozone sovereign bonds.
"OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the Euro," Draghi told Thursday's press conference.
There will be "no ex-ante limits" on the size of OMTs, Draghi added.
"This is your bazooka," Organisation for Economic Cooperation and Development chief Jose Angel Gurria told the Financial Times yesterday, having used that phrase earlier in the week when urging the ECB to act.
OMTs will target debt of up to three years in maturity, Draghi said, and will also be fully sterilized—meaning the ECB will sell other securities to absorb the liquidity created.
In addition, OMT purchases will be subject to conditionality, meaning governments would have to enter into some form of bailout program with at least the possibility of bond purchases by the European Financial Stability Facility, or its scheduled permanent successor the European Stability Mechanism. Governments that fail to fulfill their bailout commitments could face a withdrawal of ECB support.
Benchmark 10-Year Spanish bond yields fell to their lowest level since April this morning, dipping below 5.7%—two percentage points below their high in July. Italian 10-Year yields hit a six-month low at just over 5%.
Neither Italy nor Spain has formally requested a bailout, although Spain's government agreed a €100 billion credit line in June to finance the restructuring of its banking sector.
Germany's Constitutional Court is due to rule next Wednesday on whether or not the creation of the ESM is at odds with German law.
"Investors still view gold as a non-paper currency and I don't think anything the ECB said or did yesterday has changed people's psyche," says Simon Weeks, head of precious metals at Scotia Mocatta.
"Really they just kicked the can down the road."
In Switzerland meantime, the central bank may be considering a de facto devaluation of the Swiss Franc, moving its price floor for the Euro-Franc exchange rate from SFr1.20 to SFr1.30, FT Alphaville reports.
Over in China, the world's second-biggest gold buying nation behind India last year, Beijing has approved 1 trillion Yuan worth of infrastructure spending, equivalent to around $158 billion.
"With clear signs of a worsening slowdown of economic growth, China's central government has finally taken real actions," says Bank of America Merrill Lynch economist Lu Ting.
"They are clearly stepping up the infrastructure investment push to help boost confidence and revive growth," adds Zhang Zhiwei, chief China economist at Nomura in Hong Kong.
"We believe the decision for the Chinese government to intensively announce these projects over the past two days signals a significant change in its policy stance from the incremental and reactive approach to a more decisive and proactive approach."
In November 2008, China announced a 4 trillion Yuan stimulus package as a response to the global financial crisis.
The deputy governor of India's central bank meantime has again cautioned Indians against buying gold, following comments he made in July.
"Because interest rates are very low, people are investing in gold," said KC Chakrabarty on Friday.
"But the poor should never invest in gold for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at the most, it may be given away during a daughter's marriage."
Earlier this week, key figures in India's bullion industry expressed fears that gold import duties may be hiked for the third time this year.