Gold rose to $643 per ounce in New York on Monday before pulling back to $636 as the session drew to a close.
Wall Street stocks hit fresh volatility following last week's sharp declines, while the slide in equity prices continued in Europe, with the major markets closing lower for the fifth day running.
The FTSE Eurofirst 300 index lost 1% by the close – up from the 2.4% drop seen at lunchtime – making a total loss of 6.5% in Europe since global markets first followed the Shanghai exchange lower on Feb. 27th.
Gold had earlier bounced against the Euro as well as the Dollar, rising to €490 after hitting a low of €485.20 per ounce just before the London PM fix.
Versus Sterling, gold bounced 1% higher from its low to £333.80.
Overall, however, gold has now traced its entire move for 2007 so far, matching the action seen in Western and Japanese equity markets.
"You've got some wealth deterioration in the stock market," said Frank McGhee, head metals trader at Integrated Brokerage Services in Chicago to Bloomberg today.
"Gold is a store of value and it's convertible. People who need cash raise it through gold."
On the foreign exchanges, the sudden rise in the Japanese Yen began to slow after taking the Dollar down to a 10-week low just north of ¥115.
But the apparent end of the "Yen carry trade" continues to make headlines, and further liquidations of stocks, bonds and commodities is widely expected (click here to learn more...)
Decisions due this week from 5 major central banks may also add to the confusion. The New Zealand Dollar – buoyed by a wall of money from Japanese investors looking to pick up easy gains on the "carry" – may bounce as the Reserve Bank is expected to hike its rates to 7.5%.
The Canadian and Australian central banks are due to stick at 4.25% and 6.25% respectively. The Bank of England is likely to hold Sterling rates at 5.25% on Thursday.
But the European Central Bank is expected to hike Eurozone rates to 3.75%.
According to a Bloomberg survey, the BoE will lift rates once again this year, while the ECB will probably lift twice. The yield on Sterling interest-rate futures for June settlement has fallen 16 basis points to 5.67% over the last two weeks.
"The key for gold will be to weather the clean out & hold above the $635-$640 area," says Brandon Lloyd for Mitsui in Sydney.
"The weaker US Dollar, firm crude & strong gold fundamentals has the capacity to provide enough support for this to occur."
Tom Tragett of Forex Profit Alert put gold support at $635 in a private call to BullionVault today. That's where the downtrend starting last July – and broken in January – now sits. Below that comes support at $630.50 thanks to the uptrend begun in October, and then the 200-day moving average now at $622.93.
"It's significant that the downtrend broken in Jan. is still holding as support today," said Tragett, "despite the obvious selling pressure."
On the fundamental side, reported the Hindu Business Line, "fabrication demand appears to be consolidating after last year's sharp decline. Barring sharp price spikes and volatility, the demand side seems to be looking healthy with Asia again attracting attention."
For investors, gold's longer-term attractions may also come to the fore as the current chaos wears on. Central banks the world over are certainly rediscovering the metal.