Gold prices remained firm above 1700 in European session. In recent weeks, the yellow metal has been propelled by factors in the macroeconomic environment although the fundamentals remained fragile. ECB's announcement of unlimited bond purchases have sent gold higher last week while disappointing employment data in the US has intensified speculations further regarding Fed's QE3. Meanwhile, further slowdown in china's economy has also heightened hopes that the People's Bank of China would step up its monetary easing measures. Gold's appeal has increased remarkably amid central bank easing as fiat currencies lose attraction during this period.

GFMS last week released its gold survey update, forecasting gold price to rise, despite huge volatility, to 1800 before year-end and then to above 2000 in 1H13 before decline later next year. Concerning the demand outlook, the agency expects gold demand to rise +0.1% to 4509 metric tons in 2012 as driven by a +3.1% rise in worldwide gold investment. Investment demand in the precious metal is expect to rise further in the second half of the year as central bank easing is expected to lead to global inflation, leading investors to seek gold as hedge. Fabrication and jewelry demand will probably fall -4.4% to 2758 metric tons in 2012, mainly due to the contraction of Indian purchases in the first half of the year. As we mentioned in previous articles, drought season and depreciation in Indian rupee have reduced gold purchases in the Asian gold buyer.

China's demand for gold is also worrisome. According to the GFMS, jewelry buying from Chinese consumers dropped on a quarter-over quarter basis for the first time since 2006. Retail investment also declined in 2Q12 for the first time since 2005. Chairman Philip Klapwijk admitted that physical demand would be a drag on god prices if there's no major rebound in either of these two markets".

On the dataflow, UK's trade deficit surprisingly narrowed to 7.1B pound in July from 10.1B pound in the prior month. The market had anticipated a milder improvement ti 8.9b pound. The US deficit might have also widened to $44.2B pound in July from $42.9B in June.