Spot Gold Prices recovered a slight loss by the London close on Tuesday, trading near $670 per ounce as US stocks slipped and European bourses closed 1.2% lower.
The move came despite a continued rally in the US Dollar, confounding the common view that the Gold Market must always move inversely to the US currency. By lunchtime in New York, the Dollar had pushed the Euro below $1.3570 for the first time since the start of July. Gold, on the other hand, was unchanged against the Greenback from yesterday's London close, and little changed from one week ago.
Since this time last month, Gold Priced in Euros has risen by 2%. Measured against the British Pound – sharply lower on the forex markets after weaker than expected inflation data – gold today reached £335 per ounce, a near 10-week high.
Earlier in the session, Spot Gold Prices had retreated to a low of $667.25 – the lowest point since Friday's sharp rally – on news that inflation for US manufacturers rose ahead of forecast in July.
"Inflation goes up, gold goes down," said Leonard Kaplan of Prospector Asset Management in Illinois to Reuters. "The thinking of the market is that higher inflation is going to yield higher interest rates, which is going to yield a higher Dollar, which is going to yield a lower gold."
But despite rising input costs, the threat of last week's liquidity crunch in global money markets spreading to the real economy continues to spook equity and bond investors. Two Canadian trusts today said they had failed to issue new securities to repay maturing loans. A bank had declined to provide them with liquidity.
"It's confirmation that credit markets remain difficult and that there's not very much confidence in the credit market," says Michael Malone, trading analyst at Cowen & Co. in New York.
"Issues in the subprime market continue to spread throughout the system, so I think at this point in time, the question is, how bad are things going to get?"
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