Gold slumped $15 at the New York opening on Thursday, falling back from near two-month highs after the European Central Bank (ECB) surprised no one by raising Euro interest rates to 4.25%.

A fifteen per cent rise in margin requirements for Comex gold futures also dented the Gold Market, even as crude oil broke new all-time records near $146 per barrel.

"Traditionally [a margin increase] fosters some position liquidation," noted Mitsui in London this morning, "as a lot of punters are fully leveraged already.

"An increased margin requirement has to be funded somehow."

Over in Frankfurt, "the committee was unanimous in its decision to raise rates," said Jean-Claude Trichet, head of the ECB, at today's press conference.

"We do not see any contradiction between our mandates for price stability and strong growth...Sovereign governments are issuing new bonds with 50-year terms [and] thanks to our vigilance [against inflation], they can raise these funds at just 4.91% per year."

Thursday's decision widened the Euro's interest-rate advantage over US Dollars to 225 basis points.

But with US markets closed tomorrow for the Fourth of July celebrations, the European single currency – which briefly touched a new 10-week high above $1.5900 early Thursday – quickly gave back 1.5 cents on the news.

That capped the 1.5% drop in US Gold Prices to just 0.8% for French, German and Italian gold investors.

Looking at Gold's near-10% rally over the last three weeks, "the SPDR gold ETF in New York added 465,000 troy ounces yesterday," Mitsui explains, "an increase of nearly a million ounces since the start of July.

"Newcrest Mining has also announced the closure of its hedge book for an average price of $868."

Over on the financial markets, in contrast, European stock markets suffered their 17th losing session in the last 24 today, taking the loss on Germany's Dax index to more than 11% since the start of June.

"With equity markets groaning under the pressure of poor economic data and the US Dollar out of favor [on] the ECB decision, monies are flowing into oil," said Rob Laughlin, a broker at MF Global in London, to Bloomberg earlier.

"Who would want to be short oil at this moment in time?"

Thursday morning saw crude oil race towards $146 per barrel, taking its rise against the US Dollar above 50% for 2008 so far.

After the Dow Jones closed last night more than 20% lower from its November peak –technically taking it into a bear market, as Reuters finally notes today – "I think we're seeing a capitulation of sorts," believes Marc Pado, US strategist and technician at Cantor Fitzgerald in San Francisco.

"The stock market is really on its knees. Crude has a knife in our back and it keeps twisting. [Wall Street] needs a positive catalyst. It could be today's jobs number."

Already today both the German and UK purchasing managers indexes came in below expectations, pointing to a slowdown in European services.

The Stockholm General stock index dropped 2% after the Swedish Rijksbank raised its lending rate by 0.25% to 4.25% – a new 10-year high to match Sweden's 10-year record inflation rate.

Ending a five-day tour of Europe in London today, US Treasury secretary Hank Paulson warned that "oil prices are a strong head wind and at this level, they have got a high risk that they are going to prolong the slowdown."

US interest rates have now stood below the headline US inflation rate for six months running. Gold Prices have risen nearly 13% since the start of January.

The 36-month run of negative real returns to cash paid on US Dollars between 2002 and 2005 saw the price of Gold rise by more than one-half.

"Gold is a very fickle market which is partly why investors can't quite embrace it yet," reckons Ben Davies, co-manager of the Hinde Gold Fund here in London.

"Gold feels too volatile...but when [investors] realize that losing 40% to 80% of their current asset portfolio isn't great either, they might think otherwise."

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