Spot gold prices dipped ahead of the US open on Thursday, treading water above $661 as traders watched for US housing and durable goods data.
Gold also dipped against Sterling, trading at lunchtime in London below £333 for British investors wanting to buy gold now.
The price of gold in Euros however held steady for the day around €492 per ounce, thanks to a retreat in the single currency on the forex markets.
Gold's recovery late in London on Wednesday "was aided by rising crude oil prices as tensions in the Iranian nuclear saga were re-ignited," says today's note from Standard Bank.
"The US military put on its largest show of force in the Persian Gulf since the war in Iraq with nine naval vessels."
Whatever military premium the gold bullion market may command, it certainly looks set to benefit from higher US spending on the war in Iraq.
In Washington today, Congress is expected to give President Bush the $100 billion he's requested to pay for 30,000 extra troops in the region.
This will bring total war spending to more than half a trillion dollars since the terrorist attacks of 9/11 in 2001.
"I believe there is room for a lot more to do for the UN," added Zalmay Khalilzad, US ambassador to the United Nations, at a press conference last night.
"What I am saying is there is room for an enhanced role."
For now, the US Dollar rallied to a new 3-month high against the Japanese Yen overnight.
That helped to push Tokyo's gold futures contract for delivery in April '08 to the equivalent of $669.36 per ounce.
Longer term, however, the Dollar remains locked in a battle for competitive devaluation with the Chinese Yuan.
Henry Paulson, the US Treasury secretary, yesterday struck new deals with Beijing to give American firms access to China's civil aviation and finance sectors.
But China's monetary policy was off the agenda – leaving the Yuan pegged low to the Dollar, thus keeping Chinese exports cheap for US consumers.
Lawmakers in Washington say they want to push ahead with harsh trade tariffs in response. The China Daily newspaper counters that "US consumers spend too much and save too little, resulting in their country's current account deficit."
A yawning trade deficit also continues to plague Spain – and with it, the entire European single currency project.
After seeing it dump 80 tonnes of gold to help settle Spain's balance of payments gap – now equal to 9.5% of GDP – "we would not be surprised if the recent large gold sales by the Bank of Spain are continuing," says UBS analyst John Reade in a report this morning.
And also in Madrid yesterday, Alan Greenspan – former head of the US Federal Reserve – commented on the huge bubble in Chinese equities.
"It is clearly unsustainable," said Easy Al. The Shanghai stock market has tripled in the last 12 months.
"There's going to be a dramatic contraction at some point," added the man whose loose money policies first gave the world Nasdaq 5,000 and then followed up with the ongoing reflation rally now pushing asset prices higher the world over.
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