Spot gold prices slipped to $680 just after the US open on Thursday, before pulling higher to close London 1% down for the day at $682.50 per ounce.
Physical gold bullion for immediate delivery had earlier dropped more than 1.7% from its overnight peak of $692 per ounce – a fresh 11-month high – on fears that the Beijing government may act to curb the latest surge in China's booming economy.
China's CSI 300 stock market index fell 4.7% on the news, the sharpest drop in a volatile market since the 9% drop in late Feb. that triggered a global sell-off in stocks, commodities and gold.
Western stock markets initially took fright, too. But London and Frankfurt closed little changed as a rally in the Japanese Yen faltered and stock prices recovered. (Isn't gold supposed to act as a safe haven? Click here for the facts...)
Chinese GDP rose by more than 11% during the first three months of 2007 compared with a year earlier, Beijing said on Thursday morning.
The China Banking Regulatory Commission also warned today that a doubling of China's trade surplus to $46.4 billion in the first quarter may create a fresh bubble in bad loans.
The more money pours into China from US and European consumers buying cheap goods, the more money China's bank have to lend. The only thing that doesn't increase is the number of credit-worthy borrowers. (For more on the global merry-go-round of cheap money flows, click here...)
"The upside surprise has been driven by continuing strength in investment and continuing strength in politically sensitive exports," noted Glenn Maguire, chief economist at Societe Generale in Hong Kong.
"What China really needs to do is to cool profits."
Further news showed consumer prices in China rising 3.3% in March, the fastest rate in more than two years. Investment in factories and real estate leapt by one quarter from a year earlier. (What does China's bubbling economy mean for gold long-term? Click here to find out...)
"Given the newsflow from China, a stronger economy, expectations of higher interest rates plus the fact that the [stock] market had a strong rally over the last few weeks, [equities] continue to drift down today," said one analyst to Reuters.
Looking further ahead, however, "the rapid growth in world demand for metals and other resources appears to be showing little sign of abating," says a new report from the Reserve Bank of Australia today.
"There are good reasons to believe that strong demand, from emerging economies in particular, may continue for several decades."
The report points to China-led demand, noting how the bull run in metals, minerals and energy prices of the last half-decade matches the booms of the 1930s and '70s.
The RBA says that Chinese and other emerging-economy demand for hard assets and natural resources may keep commodity prices high for several decades to come.
Can global output of minerals and fossil fuels keep pace? Certainly in the gold mining sector, current production is already slipping.