Gold prices slipped below $1700 an ounce on Monday after China lowered its economic growth target and data on business activity in the Eurozone showed a contraction in the region. At the annual meeting of the National People's Congress in Beijing, China's Premier Wen Jiabao announced that China’s economic growth target has been revised down to 7.5% for this year while inflation target will stay at 4%. This is the first time since 2005 that China sees its growth at below 8%. The statements made by Wen Jiabo impacted on global equity markets and the price of gold slipped a few dollars an ounce.

Recently, the price of gold was enjoying strong upward momentum. However, this trend quickly reversed when US Fed Chairman, Ben Bernanke gave his testimony to the House Financial Services Committee to Congress, last Wednesday.

For several weeks, the Greek debt crisis was the main focus of global markets, but all this seems to have already been forgotten by investors.

In order to avert a default, and in what will be the largest debt restructuring deal in recent history, investors who own bonds governed by Greek law, which covers 92% of bonds outstanding will incur a loss of as much as 75%, thereby erasing some 107 billion euros ($144 billion) of Greek debt from its total debt burden of 373 billion euros ($496 billion).

The losses of these bond holders which include banks, hedge funds, financial institutions and private investors may be used as a reminder to potential investors that holding sovereign debt is not necessarily a sure and safe thing. In 2006 Iraq imposed an 89% loss on its bondholders in 2005 investors lost 76.8%.

As far as I am concerned these investors do not deserve any sympathy at all, as they were consumed by greed and stupidity when they originally purchased this debt. At the time of purchasing they all thought that Greek bonds were a sure bet and an easy way to earn a high interest on their money. I can recall certain European bankers touting these bonds to their clients due their high returns. And, when I urged clients not to be tempted by these high yields and to rather invest in gold, their response implied I was being ridiculous because gold was a waste of time as it did not pay any interest. Two years ago, the gold price was around $1100 an ounce. Now, perhaps those investors will understand that investing is not only about seeking high yields.

What would you rather be holding now, Greek bonds or gold?

Regardless of this restructuring deal, the fact remains that the debt crisis in the Eurozone is far from being resolved and these latest measures to “save” Greece will only buy time. Italy, Spain and Belgium remain active international borrowers, and Portugal is hoping to return to the bond market in the coming years.

But after the Greek experience, investors might think twice before investing in those local-law bonds, no matter how high the yield.

It was only a little more than a week ago, when finance leaders from the Group of 20, met in Mexico City to discuss ways they can prevent the Eurozone's problems spreading to other European countries and from dampening any signs of economic recovery.

It was their intention to secure a further $2 trillion in funds by merging Europe's temporary and permanent bailout funds, the European Financial Stability Fund and the European Stability Mechanism to create one 750 billion-euro ($1 trillion) fund which would be backed up by increased IMF funding. However in order for this to work, as Europe's richest economy, Germany's support for a larger European fund is critical. And, as was expected, nothing much was accomplished at the meeting.

The two main events impacting on gold last week were Bernanke’s testimony and the ECB’s second round of loans under their current Long-Term Refinancing Operation LTRO. On Wednesday, the Frankfurt-based ECB said it will lend banks 529.5 billion euros ($712.2 billion) for 1,092 days, topping the 489 billion euros handed out to 523 institutions in the first three-year operation in December.

While the action of the ECB, designed to avert a credit crunch, has improved liquidity and eased concerns that Europe’s banks would run out of cash or curb lending as the region’s sovereign-debt crisis drove up borrowing costs, it still remains to be seen if this money will be used to assist in an economic recovery. Although the ECB's loans are intended to provide liquidity and pump some money to households and businesses, boosting growth, I doubt much of the money will flow into either households or businesses and the bulk of the money will be used by the banks themselves.

The loans are the biggest single refinancing operation in the ECB's history. The total three-year lending is now above 1 trillion euros. The ECB lends banks as much as they want against eligible collateral. More than a third of the 2,267 financial institutions registered to borrow from the ECB took part.

As a result of the first operation, the ECB's balance sheet ballooned to a record 2.74 trillion euros.

After the ECB announcement, gold prices rallied, but later in the day, and after edging its way to a key resistance level of $1800 an ounce, the price of gold came under some massive selling pressure almost as soon as US Fed Chairman, Ben Bernanke began his speech before the House Financial Services Committee to Congress. At one time the price tumbled around $100 an ounce, but later rebounded to trade back above the key support level of $1700 an ounce.

Of course, and as usual all the damage was done on the paper market of Comex which is designed to favour the actions of the bullion banks who merely use this market to manipulate prices. Later on the in the day, the sell-off in gold was attributed to one massive sell trade of 31 tons on the Chicago Mercantile Exchange during Bernanke’s speech.

After the price had dropped, the next day in Asian markets, the lower price of gold attracted buyers and there was some good buying of physical bullion. And, as I continue to explain to my clients, we have seen this type of action many times during the last ten years. The only difference this time was that the CME did not collude with the seller or sellers as they usually do and suddenly increase margins.

Absolutely nothing has changed regarding the fundamentals of gold which remain as sound as ever with broad based demand from store of wealth buyers, institutions and central banks internationally, and especially in Asia. The financial crisis in Europe has not been resolved and the staggering level of debt in the USA will ultimately become unsustainable. While I have no doubt there are many traders out there who got burned by the latest price take down, prices will soon recover and test $1800 an ounce level.

In 1976, Nobel laureate economist Friedrich Hayek wrote that with the exception only of the 200-year period of the gold standard (1714 to 1914 in Britain), practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people.

According to Hayek's research, history proved two things: 1) that all representative governments eventually abuse their money-issuing privileges, which results in inflation; and 2) that people with access to various types of money always look for the most stable kind -- usually gold or silver.

Why should it be different this time around?