Gold Bullion prices dipped below $1620 per ounce during Monday morning's London session – slightly below where they ended on Friday – while stocks gained and US Treasuries fell, with markets focused on key monetary policy decisions due later in the week.
Silver Bullion hovered around $27.70 an ounce – in line with last week's close – while other commodities were also broadly flat.
German 2-Year government bond yields hit a new record low this morning, falling further below zero to -0.096% ahead of an auction of Italian 10-Year debt.
German bund yields then climbed higher, although remained in negative territory, after Italy successfully sold just under €5.5 billion of 10-Year bonds at an average yield of 5.96% – down from 6.19% at a similar auction last month.
Last week, benchmark 10-Year yields on Italian bonds rose as high as 6.7%, while Spanish 10-Year yields set a new Euro-era high at 7.75%. German 10-year debt this morning was trading at a yield of less than 1.4%.
"What these extreme Euro government yields are telling us is there's no single money in the Eurozone," says Ewen Cameron Watt, chief investment strategist at Blackrock Investment Institute.
"You can't have a single currency where 50% of the members are paying near zero for funds and 50% are paying more than four or five percent."
European Central Bank president Mario Draghi said last week the ECB will "do whatever it takes to preserve the Euro" and proposes using rescue funds from the European Stability Mechanism to buy distressed government bonds, according to sources cited by newswire Bloomberg.
"Any talks are far from conclusive," says a note from Citi.
"The ESM package is likely to face opposition from the Bundesbank and would require a complex approval process from European central bankers that would be both politically and technically challenging."
Under its Securities Markets Programme the ECB intervened in government bond markets last year when it bought the debt of Italian and Spanish governments. Germany's Bundesbank however reiterated its opposition on Friday to reactivating the SMP.
"[Draghi has] put his personal credibility on the line," says Erik Nielsen, London-based global chief economist at Italian bank UniCredit.
"[He] would not have done so without being confident about his key constituency...the ECB under Draghi does not like to mess around in the market, but if it sees a need, it will come with overwhelming force."
"We have reached a decisive point," says Luxembourg prime minister Jean-Claude Juncker, who is also head of the Eurogroup of single currency finance ministers, in an interview published by a German newspaper today.
"We have to make abundantly clear with all available resources that we're completely determined to guarantee the financial stability of the currency."
The ECB, which last month cut its key policy interest rate to a new record low at 0.75%, is due to announce its latest monetary policy on Thursday, the same day as the Bank of England decision.
A day earlier on Wednesday, the Federal Open Market Committee will announce whether it has decided any changes to US Federal Reserve policy.
"For gold investors it is not only Euro policy uncertainty that has created headwinds for the yellow metal," says Citi, "but also ongoing uncertainty regarding the possibility of QE3 [a third round of Fed quantitative easing]."
On the Gold Futures and options markets, the difference between bullish and bearish positions held by noncommercial Comex traders – known as the speculative net long – fell 15% in the week to last Tuesday, figures published late Friday by the Commodity Futures Trading Commission show.
"This week's change was largely the result of a massive unwinding of longs," says Marc Ground, commodities strategist at Standard Bank.
"We maintain that overall positioning in gold remains weak, and we are skeptical about the sustainability of any gold rallies over the short term, especially as it appears that QE hopes are once again raised ahead of this week's FOMC meeting."
"Investors are playing the waiting game, looking for the signal to get back in," adds a note from UBS.
The world's biggest Gold ETF, the SPDR Gold Shares (GLD), saw further net outflows on Friday, taking the total tonnage of Gold Bullion held by the GLD to 1248.6 tonnes – its lowest level since early November.