Gold Prices fell $10 on Monday to dip beneath $776 per ounce – a near four-week low – as world stock markets sank, crude oil fell, the Dollar held steady, and Treasury bonds rose once again.

Goldman Sachs – the only major US bank to avoid reporting severe losses caused by the collapse in subprime mortgage lending to date – downgraded its forecast for Citigroup, the world's largest bank, warning it may lose $15 billion on its credit-market investments over the next six months.

The S&P fell 1.2% on the news, and the Dow dropped below 13,000 for the first time since August.

Two-year US Treasury bonds, in contrast – the "safe haven" of choice for professional investors – were yielding 3.28% by lunchtime in Manhattan, the lowest return offered to new buyers since Feb. 2005.

Interest-rate futures now put the chance of an interest-rate cut when the Federal Reserve meets in early Dec. at 75%. But "the Fed will not only need to save the financial markets, reckons Tom di Galoma at Jefferies & Co. in New York.

"In very short order they're going to have to start saving the economy."

Di Galoma believes two-year Treasury bond yields will drop to 3% by the end of June next year, and 10-year yields will fall below 4%. Lacy Hunt, chief economist at Hoisington Investment Management in Austin, Texas, thinks the Federal Reserve will slash its target lending rate to 2%.

Two-year Treasury yields, however, are already well below the latest reading of US consumer-price inflation at 3.54%. The current 19-year high in soybean prices – at a time when China's domestic inflation rate has reached a 7-year peak of 6.5% – could soon see US consumers importing an ever-higher cost of living.

Dollar-bond holders will get squeezed between those rising costs and falling yields. (To get the full story on What Negative Real Rates Mean for Gold, read on...)

The threat of inflation was ignored on Monday, however, as base metal prices fell and oil prices slipped back from an overnight spike to $94 per barrel. Here in London the FTSE100 index ended the day 2.7% lower and the Pound Sterling dropped to a new four-and-a-half year low versus the European single currency.

That drop helped peg the Gold Price in British Pounds above £379 per ounce, down 1.0% for the session.

For French and German investors looking to Buy Gold Today, the price fell throughout European trade to finish at a four-week low beneath €530 per ounce.

Gold Mining Stocks traded in the United States magnified the fall in Gold Prices, meantime. The Amex Gold Bugs index (HUI) lost 2.4% in the first half of the US session; the Philadelphia index of gold & silver miners (XAU) fell by more than 4%.

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