The spot price of Gold Bullion fell back to $1516 per ounce Tuesday morning in London – nearly 4% below last month's record high – after recovering half of Monday's 1.3% drop.
Commodity markets were mixed while stocks rose after data from China showed rising inflation and investment growth in the world's second largest economy.
Spot Silver Prices also fell back after a brief rally, dropping to $34.63 per ounce – a three-week low.
"Sovereign debt issues, currency debasement, inflation and geopolitical risk are all reasons to remain bullish" for gold", leading bullion bank Scotia Mocatta writes in its latest Metal Matters report.
"I would say gold is still bullish," agrees one Gold Bullion dealer in Singapore.
US monetary policy and long-term Dollar weakness remain "the main factors", the dealer told Reuters, adding that demand for gold in China will be "pretty robust this year."
China's consumer price inflation hit 5.5% in May, its highest level in almost three years, figures published on Tuesday show. Food prices in China – the world's second-largest Gold Bullion market – were up by 11.7% year-on-year, compared to 11.2% in April.
The central bank, the People's Bank of China, responded Tuesday by raising large commercial banks' reserve requirement ratio – the minimum proportion of customer deposits that banks must hold rather than lend out – by half a percentage point to 21.5%, an all-time high.
"We expect the central bank to [also] raise interest rates next week," says Xianfang Ren, Beijing-based economist at IHS Global Insight.
China's rising inflation "presents a big challenge for policymakers" agrees Wei Yao, China Economist at Societe Generale.
"The data makes a strong enough case for the PBoC to hike interest rates within this month...a prudent central bank should not back down in such a situation."
Inflation is "above Beijing's comfort level" adds Brian Jackson, Hong Kong-based senior strategist at Royal Bank of Canada, who reckons "more rate hikes are likely over the next few months."
The PBoC has raised its deposit rate four times since last October, from 2.25% to 3.25%.
Analysis by BullionVault suggests that in recent years PBoC interest rate changes have not tended to have a lasting impact on Chinese Gold Bullion demand, with GDP growth and inflation playing a greater role.
Rising prices have prompted a "renewed fear that inflation could erode the value of investments, pushing investors into precious metals as a more reliable store of value," says Marc Ground, commodities strategist at Standard Bank.
"Gold is the main beneficiary of rising inflation," agrees Park Jong Beom, senior trader at Tongyang Futures in Seoul.
Chinese industrial output, meantime, was up 13.3% in May compared to a year earlier, while investment in fixed assets – such as factories – rose 16.9%.
"[There is] little to suggest that Beijing needs to worry about a hard landing in coming months," reckons Royal Bank of Canada's Jackson.
Over in the United States, the Federal Reserve should not continue "monetizing the debt", Federal Reserve Bank of Dallas president Richard Fisher said Tuesday.
"We've done enough...I will not support doing more."
Fisher warned in July last year that a second round of quantitative easing (QE2) would undermine the Fed's credibility, revealing it to be the "handmaiden" of expansionary fiscal policy.
In November, however, Fed chairman Ben Bernanke launched QE2, a $600 billion asset purchase program due to end this month.
"Accommodative monetary policies are still needed," Bernanke said in a speech last week.
Back here in Europe, meantime, the yield on Greek 10-Year government bonds jumped to 17.14% Tuesday morning – its highest level since the launch of the Euro in 1999 – a day after ratings agency Standard & Poor's downgraded Greek debt from B to CCC, the lowest debt rating of any country in the world.
"Problems in Europe are so severe that we're going to wake up one day and find that the Euro is no longer traded," says Dennis Gartman, publisher of the famous Gartman Letter, in an interview this week, in which he argues Gold Bullion is a better reserve currency than the "topped out" Euro.