Gold slipped back to $663 as the New York session drew to a close Thursday, matching further declines in Western stock prices.
"Traders have on eye on the stock market," said one New Jersey broker to Bloomberg earlier.
The FTSE in London has now dropped more than 5% since Tuesday. At one point on Thursday, the S&P in New York stood more than 1.5% lower for the day.
"People who've been riding gold's rally are going to bail," the broker went on. "They need to sell the most liquid asset to finance their stock holdings."
After pulling back at the US open, gold had ranged between $667 and $673 per ounce. The new fall – totaling 3.7% against the Dollar since Tuesday's 9-month high of $688 – has been matched in terms of both Sterling and Euros.
But the continuing strength of the Yen – up 4% to ¥117 per Dollar since Friday – has pushed gold further back for Japanese investors.
Gold has now dropped more than ¥5,000 per ounce from Monday's top above ¥83,250.
Yet the long-term bull market rolls on regardless. Wednesday saw the spot gold market reach its highest monthly close ever, noted John Reade, precious metals analyst at UBS, earlier today.
Even in Jan. 1980, when gold hit its famous peak of $850, the metal only closed the month at $653. Last night in New York it ended Feb. 2007 at $669.50.
Back to this week's action, and gold has yet to fall as far as the US or European stock markets. The bullish consensus of "safe haven" buying seen after the Chinese collapse hit on Tuesday, however, doesn't bode well for the metal short term..
Secondly, "sentiment towards gold is still bullish," as one analyst put it to Reuters on Thursday. "What happened this week is a blip.
"The gold price is going to head towards $700. That's what people want it to do."
What "people want it to do" – as any experienced investor knows to their cost – is most often what an asset will refuse to deliver.
Short positions in the Yen, for instance, reached record levels just before the Japanese currency suddenly turned higher last week – creating a classic "short squeeze" which may have sucked money out of the Chinese market ahead of Tuesday's 9% drop.
What to make of this week's volatile action so far? For a cutting analysis of the flashing lights and clanging bells in the Shanghai casino, click here and read on...