Gold Prices dropped to a 7-session low Tuesday lunchtime in London, as world stock markets fell hard in thin trade and the Japanese Yen reached a new 15-year high vs. the Dollar.

"Monday was about as quiet as it gets," says one London bullion dealer in a note.

"Lower gold [today] attracted only light physical interest," a Hong Kong dealer adds.

Versus the Dollar, the British Pound fell to a 1-month low and the Euro hit a 6-week low on the forex market, stemming the Gold Price drop to £787/oz and €30,920/kg respectively.

Against the Yen, gold fell to a two-week low of ¥3270 per gram. The Euro dropped to its worst level since late 2001 at ¥105.50.

New data meantime confirmed Germany's 4.1% year-on-year GDP growth for the second quarter, but industrial orders across the 16-nation Eurozone were weaker than analyst forecasts for June.

Ahead of this weekend's Jackson Hole central-banking summit in Wyoming, the Wall Street Journal today reports that the US Fed is moving to expand its program of quantitative easing after a heated debate at this month's policy meeting.

"We sent some garbled message about a weaker economy where we wanted to be more accommodative," the paper quotes Charles Plosser, head of the Philadelphia Fed,

Despite Fed chairman Ben Bernanke preparing to increase the Fed's $2 trillion balance-sheet by buying more bonds, "That was confusing and ran the risk of scaring the markets," says Plosser.

Back in Tuesday's action, "The losses on equity markets in Asia and Europe indicate that risk aversion is rising," notes Standard Bank's commodities team, but "this has not translated into the usual price increase for precious metals.

"Along with base metals, crude oil is bearing the brunt of the pessimistic global economic outlook."

US oil futures contracts today slipped for the fifth session running, dropping to a 6-week low near $72 per barrel, after China reported a 3% year-on-year drop in July's imports of crude.

G7 government bond yields meantime fell again as prices rose, driving the two-year US yield down towards last week's record low despite the looming sale of $37 billion in new two-year debt.

Noting the seasonally thin trading volumes in stocks and metals, "It's going to be choppy for the next one-and-a-half weeks," reckons Afshin Nabavi, head of trading at Swiss refinery MKS's Finance division.

Forecasting a strong recovery in physical gold demand, "The Indian festival is coming in and the funds will finish their holidays," says Ronald Leung of Hong Kong's Lee Cheong Gold Dealers, also speaking to Reuters.

But for now, however, it's "imitation gold jewelry that is flying off the shelves in Mumbai," reports Shivom Seth for Mineweb today.

"With Gold Prices testing multi-week highs and staying strong" against the Rupee, "physical demand has taken a beating, and consumers are preferring to opt for lower carats and for costume jewelry made out of 1 carat gold."

As India celebrates the family festival of Raksha Bandhan today, "We had hoped that the demand for gold jewelry would see a major spike during this time," says one Mumbai retailer, "since brothers and sisters Buy Gold jewelry as gifts for their siblings."

But "The price of gold has risen by 25% in the past seven months...[and so] youngsters are buying 12-carat or imitation gold jewelry at cheaper prices."

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