Spot Gold Prices gave back two-thirds of a 3.4% rally early Monday, trading below $795 an ounce as Asian stock markets closed sharply higher and US Treasury bonds fell.
Crude oil pushed up to $74.50 per barrel, while soft commodities and base metals bounced hard – up more than 2.5% on average – following last week's collapse.
The FTSE100 stock index here in London bounced 2%, undoing half of last week's late losses but holding worse than one-seventh below the start of the month.
The US Dollar recovered an initial drop to trade back at $1.3400 per Euro.
"Following the decline in Gold Prices on Friday," says today's gold note from Mitsui in London, "Spot Gold had rallied above $800 an ounce, with South-East Asian physical demand, [Japanese] Tocom demand and short-covering pushing us higher overnight.
With the Hindu festival of Diwali now just eight days away, "the Indian Gold Market is locking up physical requirements," the precious metals dealer goes on.
"Expect dips below $800 to be met with fresh interest out of the world's largest consumers of gold."
Looking further east, "From a jewelry demand perspective Chinese retail sales for September registered 23.2% year-on-year growth," writes Walter de Wet for Standard Bank in Johannesburg today, "overshooting expectations.
"Although this could slow towards year-end, note that this growth took place during a period of monetary tightening in China. It also provides some indication that Chinese consumers are under much less pressure than their Western counterparts."
But while Indian and Chinese gold consumers take advantage of short-term dips in the price, this summer's Demand Destruction in Leveraged Gold continues amongst hedge funds and other large speculators.
The latest data say that open interest in the US Gold Futures and options market shrank yet again in the week-ending Tues 14 Oct., down by another 1.6% to its smallest size since the start of Sept. '07.
Hedge funds and other large speculators – bereft of the cheap credit and investment-bank loans needed to finance their derivatives trading – have more than halved the number of bullish bets they hold since mid-July, back when world stock markets also turned sharply lower, knocking fully one-quarter off the S&P index of America's 500 largest corporations inside three months.
"Gold Prices certainly look much lower now as compared to a week ago," noted Adrian Koh at Phillip Futures in Singapore to Reuters earlier, "and I guess some people will be looking at picking up physical metal.
"[But] from a technical view, I am not convinced that the selling is over...With Gold Prices heading towards the downside, it simply means that funds and investors are moving money out of the markets."
The shrinkage of leveraged Gold Futures trading is being matched, however, by rapid growth in exchange-traded gold funds.
The very largest Gold ETF – the SPDR trust for US investors – has grown by 16% since the start of September. Its fellow ETF provider here in London, ETF Securities, says it saw $200 million flows into its "physically backed" gold fund last week alone.
"In volatile times like these," said the group's CEO, Nik Bienkowski, to Reuters earlier, "gold comes into its own. It is used as a store of value, a safe haven and has no correlation with equities."
ETF Securities has been at pains to differentiate its "physically-backed" trust-fund offerings from those products hit by the collapse of AIG, the giant US insurance company which stood as guarantor was for its leveraged and inverse commodity plays.
The company's Derivative Commodity Offerings ceased trading for a period in late Sept., leaving investors unable to buy or sell as the largest traders refused to make a price.
Meantime in Zurich, Switzerland today, private bank Julius Baer said it is also launching a "physical gold fund", because "the precious metal becomes increasingly important in times of uncertainty."
Julius Baer's own shares have lost more than half their value in the last 12 months. Assets under management shrank by one-tenth in the first six months of '08.