Gold prices hovered just below $1720 an ounce Thursday morning in London while stocks recovered some ground following losses yesterday, and the Dollar ticked higher, as central banks in the UK and Europe left monetary policy unchanged.

“Gold is displaying relative strength and living up to its reputation as a store of value and a safe haven,” says this morning’s commodities note from Commerzbank.

Silver prices hovered close to $32 an ounce while other commodities edged higher. US Treasury bond prices gained while those for UK and German government debt fell.

“Gold is holding up well in the face of Dollar strength yesterday and today,” says commodities strategist Walter de Wet at Standard Bank.

A day earlier, the Dow Jones saw its biggest one-day drop this year on Wednesday, falling 2.4%.

The S&P 500 also fell 2.4%, the biggest one-day drop since the start of June, as focus shifted to Congress’s prospects of avoiding the so-called fiscal cliff of tax cut expires and spending cuts currently scheduled for the start of 2013.

Policies aimed at avoiding the fiscal cliff would mean that “the marginal income-tax rate is probably going to go up…from 35% to 40%, capital gains from 15% to 20%, dividends from 15% to who knows where,” Bill Gross, co-chief investment officer at world’s largest bond fund Pimco told Bloomberg Tuesday. “And ultimately if dividend and capital-gains tax rates go up, then stocks are worth less and that’s what you’re seeing.”

In contrast with stocks, gold prices rallied yesterday after an initial drop at the start of US trading, holding onto most of their gains for the week so far. Gold ETFs tracked by Bloomberg saw their gold holdings surge by more than 4 tonnes to a new record high of 2592 tonnes.

The European Central Bank left its key interest rate on hold at a record low 0.75 % Thursday.

In a speech in Germany on Wednesday, ECB president Mario Draghi argued that Eurozone inflation “is well contained” and that the ECB expects it to fall below 2% next year.

In yesterday’s speech Draghi also denied that a banking union would necessarily lead to cross-border deposit guarantees.

“Organizing and funding deposit guarantee schemes can remain a national responsibility,” said Draghi, “with comparable effectiveness.”

The Greek government narrowly won a vote in favor of fresh austerity measures last night. The vote was passed 153 to 128 out of a total of 300, while the two biggest coalition parties expelled seven members between them for failing to support the measures.

Spain’s government meantime is considering selling 109-year-old palace Castellana in the heart of Madrid in order to raise cash, newswire Bloomberg reports, citing an unnamed source.

Euro gold prices traded just below €43,400 per kilo (€1350 per ounce) this morning, within 2.7% of last month’s all-time high. Dollar gold prices by contrast are around 10% off last year’s record.

Here in London, the Bank of England today voted to leave interest rates at a record low 0.5% for the 45th month in a row. The Bank’s Monetary Policy Committee decided not to extend the £375 quantitative easing program, which ends this month.

“QE still has a benefit and those benefits will stay there,” reckons Alan Clarke, London-based economist at Scotia Capital. “They’re not unwinding any purchases…they won’t close the door on it, they’ll leave their options open.”

“The UK outlook and data are rather mixed,” adds ABN Amro economist Joost Beaumont. “Activity is worsening, and Eurozone problems are still lingering.”

China meantime will not turn its back on one party rule, outgoing president Hu Jintao told the 18th Communist Party Congress on Thursday. The Congress will see seven new members of the Politburo Standing Committee named, including replacements for Hu and Chinese premier Wen Jiabao.

Total credit growth in China has been 16%, according to figures published by Standard Chartered, while the economy, measured by nominal GDP growth, has only grown by 10%.

“Growth needs to be achieved through real structural reforms that lift productivity rather than by adding leverage,” says a note from the bank. “Otherwise, China will have a date with a financial crisis.”