The raft of US economic numbers out this week and the stream of bad news emanating from Europe saw the gold price whipsawing on Wednesday.
After falling to an intra-day low of $1,530 in the morning spot gold had recovered to $1,569 in afternoon trade in New York as panic about Spain (which traders have dubbed 'Spanic') set in.
A sustained decline below $1,530 an ounce would signal a bear market with the precious metal retreating 20% from the record of $1,913 hit on August 23 last year. Monday was a public holiday in the US and on Tuesday gold gave up $20 an ounce.
Expectations of a new round of monetary easing in the US are rising after US housing data on Tuesday disappointed and Spain's banking problems triggered speculation that a bailout of the 5th largest economy in Europe would be needed.
The most watched US economic indicator is the employment report for May which will be released Friday morning. It would be the final employment numbers the US Federal Reserve would be able to take into account before June's meeting to decide on monetary policy direction.
Weak numbers would strengthen the hands of Fed doves who are calling for an extension of quantitative easing programs.
Operation Twist was announced in September and pumped $400 billion into markets and expires in June. The program followed QE1 which began in December 2008 and QE2 when the Fed bought $2.3 trillion of bonds.
Efforts to prevent Greece exiting the Eurozone and the banking crisis in Spain have gold bugs predicting that similar unconventional monetary policy measures are unavoidable in Europe.
If the world’s central banks join hands to flood the market with cheap money it will be a massive boon for gold. Gold should recapture its allure as a storer of wealth and an inflation hedge. And it would hurt the dollar, boosting the metal's price.
Before QE1 an ounce of gold was worth $837. Spot gold is trading slightly down for 2012 after an uninterrupted bull run of 11 years.