Gold climbed, global stocks recovered and the Japanese Yen suffered its worst drop in 17 months ahead of the US session today.
Is there a link? The Bank of New York calls it a "dead cat bounce".
"One might conclude that the JPY carry trade, and hence risk appetite, has returned with a vengeance," writes Simon Derrick.
"However, not only are one day’s activities in the market insufficient evidence...but today’s recovery in stock prices (and reciprocal losses for the JPY) remain only marginal alongside the scale of moves seen this past week."
Marginal or not, gold rose sharply in Asian and early European trade, gaining $12 in 7 hours to regain $645 per ounce.
Lower volatility on the foreign exchange markets, plus a retreat in the US Dollar, saw gold rise slightly less versus the Pound and Euro, gaining 1.6% to £334.50 and €492 per ounce by 14:15 GMT.
"Although it is too soon to conclude the turmoil of the past week is over, some semblance of stability has returned to the markets," said Adam Cole, strategist at RBC Capital Markets to the Financial Times in London.
That strong decline in the Yen, however – only its second drop against the Dollar in 8 sessions – put the price of gold for Japanese buyers more than 2.5% higher at one point, above ¥75,100.
The Swiss Franc has also halted its climb versus the other major currencies after news that Swiss economic growth failed to meet expectations in the fourth quarter of 2006.
That suggests CHF interest rates may not rise again in the near future, pushing the Swiss currency lower and putting the price of gold up 2.1% this morning at CHF 787 per ounce.
"The big question remains: Is this merely a healthy correction [in gold] or part of a bigger move lower?" asks Investec Australia today.
Unlike the decline seen after last May's 25-year peak, notes Christopher Langguth for Mitsui, gold has found support very close by.
"When the price fell in May 2006 the closest support was over $150.00 below the high close," he notes. Nearby support during the current decline may have kicked in at $635 per ounce at the Asian opening today.
David Moore at Commonwealth Bank sees "evidence of some stability emerging in international equity markets...[and that should] entice people back into investing in gold."
But "it's likely that gold will continue to trade heavy until the carry trades are done being liquidated and stock markets quit going down," says Tom Pawlicki, an analyst at Man Financial.
Has the Yen carry-trade already unwound? The rumor in London is that we're a long way from capitulation yet – read more by clicking here...
In the equity markets, the FTSE Eurofirst 300 index finally turned higher this morning, gaining 0.4% after dropping 6.7% from last Tuesday.
But the US markets couldn't snap their losing streak last night. Investors caved in as the closing bell approached, with losing stocks outnumbering rising stocks by more than 4-to-1 on both the Big Board and the Nasdaq.
"There's been a change in psychology and there's been a change in risk appetite among investors," said Phil Orlando, chief portfolio manager at Federated Investors in New York to Bloomberg, "and we can't expect the bottom after two weeks."
Even with the bounce in Europe so far, the crash starting in Shanghai this time last week has now knocked nearly $2 trillion off the value of global stocks.
And falling fastest, the subprime lenders in the US mortgage market have now reached what Reuters calls a "crisis".
Shares in New Century sank by nearly 69% on Monday. Fremont General, the second-largest independent subprime lender, dropped one-third of its value.
There's nothing to fear, however, according to the US authorities. "Credit issues are there," said Treasury secretary Henry Paulson earlier today during a tour of Asia, "but they are contained."
The Fed's expectations for growth have "not materially changed" according to Governor Kroszner. Governor Warsh says "the U.S. economy continues to demonstrate extraordinary resilience – no doubt supported by the ability of financial markets to absorb substantial shocks."
And St. Louis Fed President Poole says history may prove last week's slump to have been "hardly a wiggle in the value of equities."
Any chance Dr. Ben and his colleagues might be wrong? Former Fed chairman Alan Greenspan let slip in a "private" meeting Monday that he sees a 1-in-3 chance of the US slipping into recession by the end of this year.
What would that mean for US interest rates? Click here to read more...
Meantime in the Middle East, the Gulf Times reports that Abu Dhabi's gold jewelers suffered a 40% drop in sales in the 12 months to Feb. as the price of gold soared.
But investment demand in the region looks set to grow further after India's UTI Mutual Fund today announced the launch of an exchange-traded gold fund for local investors in Bahrain.
The fund, a first for Bahrain according to Gulf Daily News, is now open for subscription and closes on March 12.
"This is an open-ended exchange traded fund," said UTI's vice-president, "designed to track the performance and yield of gold."
Tracking gold's capital gains might prove useful, of course. But tracking gold's yield?
Middle Eastern investors won't be thankful for that – gold pays no income and never will!
But that's not to say gold can't outperform better-yielding assets, however. For the full story on what really drives gold higher and lower in the long run – plus the underlying trend for gold prices in 2007 – click here now...