Spot Gold Prices from an overnight rally in Asia during in the first-half of London trade on Friday, giving back $3.50 per ounce to record an AM Fix of $663.50.
"Yesterday's fall in the Gold Market was a pure reaction to the equities market," reckons Ng Cheng Thye, head of precious metals at Standard Bank Asia.
"This morning we saw a lot of bargain hunting."
Bargain hunting was also seen in the key Indian gold market, where gold futures rose as the Indian Rupee fell against the Dollar. But the rally petered out as London opened and the Euro sank along with the British Pound to a new two-week low.
Trading at barely $2.0300, the Pound capped the retreat in Sterling Gold Prices at £325.94 per ounce by the Morning Fix in London. The Euro dropped as low as $1.3640 against the US Dollar – in which gold is priced internationally.
That put the price of gold for French and German investors wanting to Buy Gold Today up at €487 per ounce – more than 1.3% above Thursday's two-week low. The Japanese Yen moved sideways at its current three-month high, worth ¥118.76 to the Dollar. (Read more about the Yen's role in the current market turmoil from Gary Dorsch here...)
"Gold is consolidating ahead of the US market open," said Michael Jansen, an analyst at J.P.Morgan to AFX News. "We'll be looking to Wall Street to provide broad direction today."
European stock markets rose a little in morning trade, recovering 0.1% after yesterday's 3% drop – the worst day for the FTSE100 in London since 12 March 2003, the very bottom of the Tech Stock collapse.
The Dow in New York lost more than 400 points at one stage. US Treasury bonds are now heading for their best weekly performance since Sept. last year in what fixed-income analysts agree is a "flight to quality"
"The world economy will slow down this year," said Hiroki Shimazu at Mizuho Securities in Tokyo overnight. "I'm bullish on US Treasuries." The yield on 10-year US bonds has now been pushed down to 4.77% by rising prices. Last month it touched a peak above 5.30%.
The current market turbulence threatens "a triple whammy for the economy" says Bloomberg, robbing investors of spending power, making business investment more expensive and potentially prolonging the US housing recession.
Interest-rate futures are now unanimous in predicting that the US Federal Reserve will follow its 12 months of inaction by cutting the cost of borrowing Dollars by the end of this year. Only two days ago, the market put the chance of a Dec. cut at just 44%.
Eurozone interest rates now have a less-than-even chance of continuing to rise, according to prices in the European futures market. This week's flight to sovereign government bonds, which has pushed up prices and forced down yields, also means it will be "getting difficult for the Bank of Japan to push through an August rate hike in this environment, meaning government bonds have more room to go up," says Shinji Kunibe, a fund manager in Tokyo for J.P.Morgan.
"When people want to Buy Gold as an Investment, that's because they see raging growth and inflation," reckons David Hightower of the eponymous Chicago research company. Citing Thursday's weak US housing data, "it's hard to think of inflation when you have a threat against the economy," he explains.
But history in fact points to lower interest rates, often caused by a weakened economic outlook, as a key driver of bull markets in gold. Indeed, the current pullback in gold prices could present a good opportunity to buy today given the wider market view that Dollar interest rates are set to fall.