The European Central Bank reiterated it is ready to buy sovereign bonds but Spain is still refusing to ask for the necessary bailout. The news is holding back gains in gold and other precious metal ETFs.

The ECB said last week that it is ready to start buying sovereign bonds of troubled countries once “all prerequisites are in place.” The ECB said that its “fully effective backstop mechanism” is in place now and it is in the governments’ hands whether it will be implemented.

However, for the buying to be triggered, Spain first has to ask for a bailout. Upcoming elections in October and November appear to be holding back Spain’s politicians from requesting aid.

Further bond yield back-up is likely necessary to force their hand. Once Spain makes its bailout request, the Euro will likely strengthen (the US dollar weaken) and precious metals – particularly gold and silver – may be in a position to gain.

The US unemployment rate fell to 7.8% in September 2012 from 8.1% in August 2012. While the number of jobs added to the economy only rose by 114,000 in September, the figures for the previous two months were revised upwards (by a
cumulative 88,000).

Last month, the Fed announced it will buy $40bn of MBS each month. Currency debasement fears drove the gold to a 10 month high following that announcement.

However, the latest jobs numbers from the US have temporarily reduced expectations for further Fed action, and held back further price gains. Despite the better than expected payrolls numbers (and upward revisions), payrolls remain well below the approximate 200K threshold necessary to sustainably reduce US unemployment.

With European sovereign risks still high and global stimulus likely to remain in place for the foreseeable future, any dips in the gold price are likely to be short-lived.

Also, with a relatively slow data week ahead, focus will be placed on the Council of Economic and Finance Ministers (ECOFIN) meeting and any signs of progress in approving Greece’s next financing tranche.

ETFS Physical Swiss Gold (SGOL)