"No Catalyst" for Gold Prices, But "Central Banks Should Keep Buying", Italy's Borrowing Costs Rise Again

Gold Prices fell as low as $1565 per ounce Wednesday morning in London – 1.4% down on this week's high – before recovering some ground by lunchtime, while stock markets posted slight gains ahead of tomorrow's European Union summit.

Silver Prices traded below $27 an ounce for most of this morning, while other industrial commodities were broadly flat on the day by lunchtime. 

On the currency markets meantime, the Euro was broadly flat against the Dollar, trading just below $1.25 for most of the morning.

"We're in a bit of a period over the summer when we are going to see very little meaningful action by policymakers in three key regions – Europe, the US and China," reckons Daniel Brebner, head of metals research at Deutsche Bank.

"Pressures in the gold market will continue to mount...I don't think there's any kind of catalyst near term for a significant rebound in Gold Prices."

Brebner adds however that he expects "very steady buying by central banks" to continue, which "should help Gold Prices from weakening too much".

At tomorrow's EU summit, Italian prime minister Mario Monti is expected to propose using money from Eurozone bailout funds to ease sovereign borrowing costs by buying debt on the open market, the Financial Times reports, despite the policy drawing criticism from Bundesbank president Jens Weidmann after it was put forward last week.

Weidmann described the idea as "state financing via the central bank printing press", prompting Monti to respond that the Bundesbank chief has "badly misunderstood" the proposal.

Italy sold €9 billion of six-month bills Wednesday, at an average yield of 2.96% – up from 2.10% last month. 

"Today's bill sale points to the sovereign getting this supply away but at yield levels sufficiently elevated to leave a niggling doubt at least as to the medium-term sustainability of the country's public finances," says Rabobank strategist Richard McGuire.

Italy's rise in borrowing costs follows an auction the previous day that saw 2-Year yields rise to 4.71%, their highest level since December.

Italy is due to auction €5.5 billion of 5-Year and 10-Year bonds tomorrow. On the bond markets, 10-Year bonds traded at yields as high as 6.2% Wednesday morning, up from 5.9% at the start of June.

Elsewhere in Europe, German chancellor Angela Merkel told the German parliament Wednesday there is no "magic formula" that will solve the Eurozone crisis.

"It is imperative that we don't promise things that we cannot deliver and that we implement what we have agreed," said Merkel, adding that joint liability for sovereign debts "can only happen when sufficient controls are in place."

"I don't see total debt liability as long as I live," German chancellor Angela Merkel reportedly told her Free Democrat coalition partners Tuesday.

Over in Madrid, the Spanish government has scrapped a tax rebate for homeowners brought in six months ago by prime minister Mariano Rajoy to meet election promises, citing its growing budget deficit.

"The deficit has started on a downward path and we expect that to intensify," said deputy budget minister Marta Fernandez Curras Tuesday.

Here in London, Bank of England governor Mervyn King cited "worsening...in the [economic] position in Asia and other emerging markets" as a reason he voted for an additional £50 billion of quantitative easing earlier this month.

"We are in the middle of a deep crisis," King told the Treasury Committee on Tuesday, "with enormous challenges to put our own banking system right and challenges for the rest of the world that they are struggling with."

Proposed additional QE was defeated by five votes to four at the June Monetary Policy Committee meeting. The MPC makes its next policy announcement Thursday next week.

The central banks of Kazakhstan, Russia, Turkey and Ukraine were among those who added to their Gold Bullion holdings last month, according to figures published Tuesday by the International Monetary Fund.

India's central bank meantime is considering banning the sale of gold coins by the country's banks, according to India press reports on Wednesday.

Indian trade with Dubai meantime totaled $10 billion in the first quarter of this year – making India Dubai's biggest trading partner ahead of China – data published by Dubai Customs show. Gold Bullion represented both the biggest import and biggest export for Dubai.

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