Gold slipped below $640 per oz as Europe opened on Wednesday despite rising jewelry demand in Australia and a sharp sell-off in the Thai stock market.

Tokyo remained closed for the New Year holidays, but premiums for gold bars had held steady in Singapore and Hong Kong.

"Each jeweler has a certain amount of gold on stock and that's called his reserve," explained Jonathan Barratt, managing director of Commodity Broking Services in Sydney, to Bloomberg. "The ones we've talked to say they've had a good Christmas, they've had to dip into their reserves, and so they are physically buying."

"[But] the market is really looking at the weaker US Dollar," he went on. "What they are concerned about is rate rises in Europe and rates coming off in the US."

Big news on the Dollar due later today. After Wall Street stayed shut on Tuesday for ex-president Gerald Ford's funeral, traders are now looking to two key releases – the Institute for Supply Management's manufacturing index at 15:00 GMT, followed by the Federal Reserve's latest policy meeting notes at 19:00 GMT.

The ISM is expected to say manufacturing output was static in December. Judging by US bond prices, the Fed is expected to say it's done raising US Dollar interest rates.

"With recent market talk suggesting that inflation may be under control again in the US, it could have important implications for US interest rates, the Dollar and hence gold," notes Investec Australia in its daily report.

Another Sydney-based analyst reckons the Dollar could fall to $1.39 versus the Euro by April. The Euro rose to $1.3283 in Asian trade today. And German data just out also point to rising Euro interest rates. German unemployment rate fell in December at the fastest rate since re-unification in 1990. The adjusted jobless rate fell from 10.1% to 9.8%.

Further signs of a weaker Dollar ahead also come from "Dr Copper". London-listed mining shares ended Tuesday nearly 2% higher on the back of fresh M&A rumors. They've fallen back this morning as the market got to grips with news that copper – known as the "metal with a PhD in economics" – fell the most in seven weeks to reach an 8-month low thanks to mounting stockpiles of unsold metal.

Inventories of copper leapt 4.3% last week to 190,575 metric tons, says the London Metal Exchange, the largest stockpile since March 2004. Most of the increase comes in the United States, the world's No.2 consumer of the metal after China. US inventories rose to 75,600 tons from less than 1,000 tons at the beginning of 2006. Analysts blame the weakening US housing market. Copper is used in pipes and wiring.

"The bulk of the demand weakness is in North America," says Neil Buxton, managing director of the GFMS consultancy. Chile's state-owned copper producer, Codelco, has confirmed it will charge its US customers lower prices than Asian and European buyers.

What could the US slowdown mean for the global economy? It's already hurting Chinese exporters, says a report in the Wall Street Journal.

"The tightly controlled Chinese yuan has crept up 6% since July 2005," says the paper, "when the government loosened its link to the US Dollar...The Chinese currency's rising value has started to pinch an increasing number of businesses here, eroding already thin profit margins, forcing them to reduce expenses and sometimes costing them business."

But unlike Chile, China may actually raise prices for US consumers. "As the yuan continues to edge up," the WSJ reports, "so will China's export prices, says Edward Leung, chief economist of the Hong Kong Trade Development Council, a government-funded industry group. Manufacturing costs in China already face rising labor and materials expenses, he says. Further gains by the yuan will leave exporters with little choice but to charge more."

Economic slowdown in the US is also the No.1 concern in a new poll of 49 economists by the Financial Times. They put the risk of a geopolitical crisis second. And political risks have already spooked the markets today.

The Thai stock market, still shaky after the government set and then cancelled restrictions on foreign investors, has dropped 3.9% on its first trading day after a series of bomb attacks hit Bangkok on New Year's Eve.

"[The] weakening dollar and geopolitical tension – especially because of Iran – will keep gold supported," says a risk analyst in Mumbai. An Israeli consultancy also cites Iran as a key risk in its 2007 yearbook.

"The Middle East will change overnight when Iran goes nuclear," said Zvi Shtauber, the institute's director at a press conference yesterday. "Others will follow suit."

Where will the "hot money" now driving global equity and bond markets flee? Finding a decent rate of return is tough enough for the world's institutional investors right now – and that's only adding to their risk. To read more, click here now...