Gold rose steadily in Asia and Europe today, climbing towards $678 by mid-morning in London after tumbling 4.1% at the close of Tuesday's US session.

The sharp sell-off in global stocks, however, continued. As the US opening approached, the FTSE in London, Dax in Frankfurt and CAC in Paris were all trading around 1% down for the day so far, following on from Tuesday's 3.8% drop in the Dow.

Already in Tokyo today, the Nikkei has sunk 2.9%. Gold's sharp drop yesterday may not be unrelated.

"If you are long in gold and hold shares as collateral to cover margin requirements, then you have to sell when the stock markets fall," said a dealer in Singapore to Reuters earlier.

"This is also related to long positions in New York. That's what we call a chain effect. But bargain hunters are coming in because the price is cheap and good."

Bargain hunters found rich pickings in gold late on Tuesday. As the US moved into the afternoon session, gold dropped more than 4% against the Dollar to bounce off $660.

Versus Sterling gold lost more than 3.5%. Gold dropped faster still against the Euro, down from a new 9-month high of €520 to below €500 inside three hours.

But the Japanese Yen pushed gold back hardest of all. The Yen price sank by nearly 4.5% to a three-week low of ¥78,000, driven lower by a sudden bounce in the Japanese currency on the foreign exchange market.

The Yen spiked by 2.5% against the US Dollar on Tuesday, its sharpest move since the global shake-out in stocks, bonds and commodities in May last year.

So it's no surprise that the talk today is of an end to the Yen "carry trade". This investment strategy has seen hedge funds and banks – but mostly private Japanese citizens too – borrowing cheap Yen to invest overseas for a higher rate of return.

"Carry" works beautifully...just so long as the currency you owe doesn't rise sharply against the assets you've bought. But with Chinese stocks dropping 9.2% on Tuesday, many Japanese funds will have repatriated their cash – suddenly pushing the Yen higher. (Read more about the carry trade here...)

"Very near-term, the risks for the Dollar are clearly, clearly to the downside," reckons currency economist Derek Halpenny.

"The Yen fundamental picture hasn't changed but perhaps the Dollar fundamental picture is changing and becoming more grim."

The knock-on effect in the gold market – where private Japanese investors had built a record "long" position earlier this month – created a one-week low against the Dollar, quickly exploited by jewelry and industrial buyers in Asia.

"Some players think it's a good opportunity to buy cheap gold," said one Hong Kong dealer earlier.

"Physical buyers will [have taken] a chance to buy at these levels," he said.

As with all major currencies, gold priced in Yen has now crept higher again. By 10:00 GMT it has recovered ¥80,000 per ounce.

Gold also opened today's European session above €510 per ounce, equal to £345.

For Dollar-based investors, gold has now climbed by 2.4% from the bottom of Tuesday's sell-off, breaking $676 by mid-morning in London.

And longer-term, the fundamentals driving gold's 6-year bull market remain intact. To look beyond the short-term action to the "big picture" today, click here and read on...