Gold gave back all of a 1.5% rally late-morning in London on Wednesday, dropping below $815 per ounce in thin but frantic trade as the US Dollar continued to rally against pretty much everything.
Crude oil ticked back above $113 per barrel – down almost 25% from its top of early July ahead of today's much-anticipated US inventory stockpiles report – while base metals continued to slide.
Asian share prices sank to a one-month low, dropping more than 2% in Tokyo after official data said the Japanese economy shrank between April and June, squeezed by falling exports to the United States.
European stocks fell 0.7% on average, erasing this week's gains to date.
"We've been surprised by the strength of the US Dollar rally over the past month," wrote a Goldman Sachs analyst to clients on Tuesday.
"Nevertheless, we believe the threat of rising inflation and the climate of general economic uncertainty remains constructive for Gold in the medium term."
Already trading more than 5% lower against the greenback from Monday last week, the British Pound today sank 2.5¢ inside one hour – sinking to its lowest level since Nov. '07 – on news of rising UK unemployment and slowing pay growth.
The Gold Price in Sterling bounced 3.5% from Tuesday's seven-month low to touch £437 per ounce.
The Euro also sank vs. the Dollar, falling back towards Tuesday's fresh six-month lows beneath $1.4860 after new data showed industrial production in the 15-nation currency zone contracted by 0.5% in the year-to-June.
For French, German and Italian gold buyers using the live online market at BullionVault, the Gold Price in Euros reached €547-bid in the Zurich vault, up some 1.3% from yesterday's eight-month low.
"When the Dollar quits going up, Gold quits going down," said Frank Lesh, a trader at FuturePath Trading in Chicago to Bloomberg overnight.
"[But] it's going to take time to repair this. Don't look for a quick turnaround."
After recording the lowest London Fix since Dec. 21st at $808.75 on Tuesday morning, the Gold Price in Dollars stood at $824 per ounce at 10:30am today in London.
In the bond market, 10-year US Treasury yields pushed higher to 3.90%. UK gilt yields, in contrast, fell hard to give back all of Tuesday's sharp rally – sparked by news of a 17-year high in retail price inflation.
That took two-year UK bond yields back to 4.54%, barely above the official rate of consumer price inflation at 4.4% per year.
Tomorrow brings the latest US consumer-price figures, expected to show inflation of 5.2% from July last year.
Current US interest rates now leave cash savers losing more than 3% of their wealth year-on-year.
Even so, "we've seen heavy liquidation in gold driven by a combination of the Dollar strength and oil prices," believes Suki Cooper at Barclays Capital in London
"We're reaching a turning point in prices.
"There have been concerns about the wider economy, circumstances in which you'd expect the Gold Price to thrive in," Cooper told CNBC today. "But we're seeing the opposite...a turn in sentiment, and a rally in the Dollar, the weakness in oil prices, as well as the balance in the equity market."
Outside the holiday-thinned markets of Europe and the US, however, "demand has been so much in the last couple of days" as Suresh Hundia, president of the Bombay Bullion Association in India, told Bloomberg yesterday, "that banks and other importers have run out of supplies.
"If the price keeps falling, there's no reason why people won't continue to buy."
Dealers across the sub-continent report supply problems after the wave of physical buying that started last week.
"The delivery time is four to five days," says one Bangalore trader.
Indian gold buyers accounted for one ounce in every five sold worldwide last year, but this spring's record high prices saw demand collapse by up to 95%.
"Today demand has halted," said one large gold wholesaler to the newswire overnight, "but there are plenty of orders placed in advance for $805-$810 an ounce levels."
On the economic front, India's annual inflation rate is forecast to have reached a 13-year high above 12% according to a Reuters poll.
GDP growth is cooling, meanwhile, and the value of the Indian Rupee falling fast on the world's currency markets.
Regardless of domestic inflation and imported price hikes, however, O.P.Bhatt – head of India's largest lender, the State Bank of India – believes interest rates have "almost peaked".
India's key interest rate remains 3% below the rate of consumer-price inflation, very nearly matching the negative real interest rates now suffered by US cash savers.
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