Spot Gold Prices pulled back at the US open on Wednesday, dipping below $710 per ounce but remaining 0.7% above yesterday's start.
This morning in London, gold recorded its highest Fix since 17th May 2006.
"The gold rally got a little overextended," said one technical strategist at Barclays Capital – the London investment house that's now offered $4.1 billion in aid since mid-Aug. to support three highly-geared funds facing serious liquidity problems.
"As long as the price stays above $695, our short-term focus is higher."
Wall Street's major stock indices opened the day lower, while US Treasury bonds were well bid, holding the two-year note's yield near a 24-month low of 3.94%. Wheat prices rose as the US Dept. of Agriculture cut its world harvest forecast. Coffee prices rose to a 9-year high. (Click here to read more about rising food prices, inflation, gold and bonds...)
Earlier today, gold futures traded for Aug. '08 delivery in Tokyo had closed 1.6% higher as Shinzo Abe, the prime minister, stood down after failing to gain support for providing help to the US-led coalition in Afghanistan.
"Japanese domestic politics should have little to do with the bullion market," said one Japanese commodities trader to Reuters. "Gold Buying on the Tocom was triggered by a fall in the Yen."
Yet in fact, the Yen barely moved on the news of Abe's resignation, holding steady against both the US Dollar and the high-yielding "carry trade" currencies of New Zealand, Australia and Britain.
The Nikkei stock index, in contrast, dropped 0.5% for the day, taking its losses for the last five sessions above 2.1%. By lunchtime in London, the UK's top 100 shares also stood 0.5% lower, despite reassurances from Mervyn King, governor of the Bank of England, that the UK economy is strong enough to withstand the sharp increase in money-market lending rates, now standing at a two-decade high near 7%.
Weighing the policy options presented to central bankers, "the provision of large liquidity facilities penalises those financial institutions that sat out the dance, encourages herd behaviour and increases the intensity of future crises," said Dr.King in an open letter sent to the UK parliament.
In Frankfurt today, however, the European Central Bank chose to lend commercial banks a further €75 billion for three months – equal to $104 billion – in a clear sign that short-term Euro money markets remain tight.
The ECB settled for average interest payments of 4.52%, some 52 basis points above its main target interest rate, but below the open market rate of 4.75%.
The European single currency continued to rise regardless against the US Dollar, taking its gains of the last 5 sessions to 2.6% as it broke new all-time highs above $1.3880.
"The outlook for lower US interest rates and a weaker US Dollar remain the underlying driving force for gold," according to analysts at Dresdner Kleinwort today. But while the Euro has now risen by 63% versus the greenback since late 2000, gold has risen by more than 160%.
Early Wednesday, the Price of Gold in British Pounds reached a 16-month high, trading above £351 per ounce.
The last time gold bullion held this much value for British investors, it had just broken all-time record highs in Sterling above £380 per ounce.
"An important plank of the gold bull market, we believe, is strong underlying physical demand, which remains firm despite high prices," says James Steel, precious metals analyst at HSBC in London.
Gold dealers in India, reported a sharp upturn in gold sales today. "Demand has improved as people have started buying for the festive season," said one jeweler in Delhi to Reuters.
Other dealers reckon the Indian public is still waiting for gold prices to fall back, perhaps looking for a 1% dip against the Rupee.
But "post-Ganapati [in December] gold buying will start immediately," says Rajiv Popley of Popley & Sons, "even if the prices remain the same way.
"This is the season one has to buy gold irrespective of the price."