Gold Prices failed to hold their overnight gains early Thursday, dropping back to slip below $801 after recording an AM Fix here in London of $806 per ounce.
Down more than 1% from Wednesday's PM Fix against the US Dollar, today's benchmark price was higher, however, for both European and British investors wanting to Buy Gold Now, thanks to a rally in the US currency on the foreign exchange market.
By lunchtime in London, the Euro had dropped more than 1¢ to $1.4610, helping the Gold Price in Euros reach €550.40 per ounce.
For British investors, the Gold Price in Sterling rose back to £393.50 per ounce after slipping from a three-session high of £398 at the start of today's trade.
The British Pound, meantime, sank to a three-week low of $2.0420 – and it plunged to a four-year low versus the European single currency – on news that UK retail sales fell for the first time in nine months in October.
The 0.6% rise previously reported for Sept. was also revised down to just 0.3% growth. Yesterday the Bank of England said it may cut interest rates twice in early 2008, despite rising inflationary pressures, in an attempt to forestall a slowdown in the British economy.
"The fundamentals of the Gold Market remain unchanged," said K.Venkatraman, head of trading at Suraj Diamonds in Mumbai to the Economic Times of India earlier today.
"The Dollar continues to be weak against the Euro and other currencies. Softening of crude oil prices is the only consolation. But Gold Prices have risen quite sharply and a correction was long overdue.
"In India, local Gold Prices may touch 9,700 Rupees per 10 grams [equal to $767.99] before they peak again."
The surge in Gold Market prices has clearly dented growth in world demand for gold jewelry, said an authoritative report issued on Wednesday. The World Gold Council's latest Gold Demand Trends says that gold jewelry demand grew by just 6% in tonnage terms between July and Sept. compared with a year earlier.
In India – destination of one-in-five ounces of gold sold worldwide last year – demand growth slowed to only 5% during the summer from 59% year-on-year during the first half of 2007.
But "the demand for gold is sustainable in the long term," said Jill Leyland, chief economist for the World Gold Council on South Africa's Radio 2000 last night.
"There will be hiccups in the short term because the markets, particularly in India, do not like price volatility. But as soon as the Gold Price stabilizes, demand will come back regardless of what the price is."
"We saw a short-term pick up in September and that should continue because of what is happening to the US Dollar and the world economy."
Gold's sharp bull run also hit the professional gold market last month according to the latest data from London Bullion Market Association.
With the world's physical Gold Trading centered in London, the number of ounces transferred by LBMA members in October fell 3.2% from the same month last year. The value of those transfers rose by 24.4%, however, and the number of deals rose by nearly 37%.
"We expect high volatility in gold to continue for a while before the market bottoms out," reckons Si Kannan of Kotak Commodities in Mumbai, India.
"The medium to long term clearly remains bullish, but there is 68% probability that market will range between $793 to $823 per ounce. Only a close above $850 would open a new range of $850-950."
In the broader commodity markets, crude oil prices slipped further below $94 per barrel ahead of today's US stockpile data, due at 10:30 EST.
Wall Street futures also pointed lower after Japan's Nikkei index closed the day 0.7% lighter – taking its decline for the year-to-date to almost 11% – and European equities dropped nearly 1% on average.
Barclays Bank, the third largest bank in the UK, today announced a writedown of $2.7 billion on its US mortgage-bond investments, way below the $10bn losses rumored last Friday. But the 9¢ bounce in its stock today still leaves BARC trading nearly 25% down from 12 months ago.
On the economic front, all eyes are now on the US consumer-price index, due for release at 08:30 EST. Following Wednesday's surprise drop in US Producer Price inflation, Wall Street analysts now expect the surge in world energy prices to only push the CPI up by 3.5% year-on-year from Sept.'s 2.8% rate of increase.
But with two-year US Treasuries now yielding less than that at 3.45% today, the ongoing "flight to safety" in fixed-income Dollar assets is looking more like "out of the frying pan into the fire" with every rally in bond prices.
"There's still great uncertainty about the economy and that's supporting Treasuries," says Glenn Marci, a fixed-income strategist at DZ Bank in Frankfurt. "We're [also] seeing a reaction to the fall in stocks."
Yields on two-year German bunds dropped to 3.86% as European equity prices fell again. The continent's 100 largest stocks have now dropped more than 5% of their value in the last month.
Japanese government bonds also pushed higher as Tokyo equities fell today, sending the yield offered by 10-year JGB's to 1.50% – a level last seen when the Bank of Japan's policy rate stood at zero.
Slashing Japanese interest rates failed to reignite the Japanese economy after its debt-bubble burst in late 1989. Nearly 18 years later, falling wages and real estate prices continue to dog consumers and investors alike.
Savers putting their money into Gold Bullion Investment during Japan's ongoing depression, on the other hand, have now tripled their money in the last six years alone.