Gold gave back an overnight rally at the start of London trade Wednesday, dropping 0.9% to $914.60 per ounce as the Euro and crude oil both slipped from their new record highs vs. the Dollar.

World stock markets lacked direction in very volatile trade. US Treasury bond prices fell for the eighth day running, pushing two-year yields up to a nine-week high of 2.35%.

"Interest rate futures are currently pricing an 82% probability of a 25 basis-points Fed rate cut [next week] and an 18% probability of rates being held constant at 2.25%," write Walter de Wet and Manqoba Madinane in today's Gold Market note from Standard Bank in Johannesburg.

"Although still unlikely, the probability of the Fed rate being held constant is increasing, with markets now ruling out the likelihood of an aggressive 50 basis-points cut. This should inject near-term bearish sentiment into precious metals.

"An unchanged Fed funds rate could possibly increase the potential for further downside [in Gold]."

Oil prices pulled back from Tuesday's new all-time high of almost $120 per barrel as union leaders in Scotland met with managers from Ineos Group – owner of the Grangemouth refinery – to avert a strike at the key North Sea plant.

"The weakness of the dollar is a great driver here," reckons Francisco Blanch at Merrill Lynch in London.

"Oil has become a little bit of a monetary phenomenon, where low rates boost demand for oil in emerging markets."

The Euro also pulled back today from its new record highs just above $1.60 versus the US Dollar – an apparent "line in the sand" for the European Central Bank according to many forex analysts – after ECB member Christian Noyer said his comments about raising Eurozone interest rates yesterday were "overinterpreted".

"Movements [in interest rates] can go both ways," Noyer told the Wall Street Journal. "I would never engage in a discussion about the future path of interest rates, simply because nobody knows. It would be dangerous to make predictions in either direction."

Today in Beijing the People's Bank of China set a new limit on borrowing from overseas in a bid to cap the inflow of US currency, supporting Dollar interest rates in the open-market and limiting the Chinese Yuan's pace of gain.

The US Dollar has this week dropped below CNY7.0 to lose more than 15% of its value against the Chinese currency in the last three years.

Six of the 10 most-actively traded Asian currencies today rose vs. the Dollar on news that inflation in Singapore rose 6.7% in the year-to-March.

Consumer prices in Malaysia also rose faster than during February, up 2.8% from 12 months before.

"It's pretty much a reflection of region-wide inflation pressures," said one currency strategist to Bloomberg overnight. "There could be a greater willingness on the part of the central banks to let their currencies go stronger," said another.

"In any country in the region, you have some concern that inflation could pick up."

Here in London the Bank of England released minutes from its April policy meeting and showed a rare three-way split in the BoE's nine-member committee.

Two policy makers voted to keep rates on hold. US academic David Blanchflower voted for a 0.5% cut.

The final decision – for a 0.25% reduction in Sterling Interest Rates – accelerated the Pound's 12% drop on the currency markets since last summer. Today's minutes only caused a brief one-cent spike in GBP/USD, but the Gold Price in Sterling recorded a three-session low at the AM Fix below £460 per ounce.

For French, German and Italian investors looking to Buy Gold today, the price slipped to a three-week low of €572 per ounce overnight in what one analyst called "a very stagnant range."

Tocom gold futures in Tokyo ended the day unchanged at ¥3,074 per gram, equal to $927 per ounce. Benchmark Indian gold contracts held in a tight band between 11,800 and 11,900 Rupees per 10 grams, reports the Economic Times.

"The global gold book grew by 32 tonnes [last] week to bring investors' net long position to 787 tonnes," notes Mitsui, the precious metals dealer. "While that investment size may appear quite large, it remains 157 tonnes below the record seen during the week of 26th February.

"This indicates the extent to which speculators have limited their long exposure to the yellow metal over the last 8 weeks. [It's now] a market operating without a chunk of its typical participants."

Most crucially, says Shailendra Kumar, chief researcher at Sharekhan Commodities in Mumbai, "Gold is not responding to firmer crude oil prices. It seems there is some sort of bearishness surrounding it."

"A weak Dollar and expectations of further weakness against the Euro attracted some buying interest back into gold this morning," agrees William Kwan, head of metals dealing at Phillip Futures in Singapore, speaking to Reuters.

"[But] bullion still has limited upside potential," he believes.

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