The Japanese currency – which pays the lowest interest rates of 30 major currencies worldwide – surged overnight to an 18-month high against the US Dollar. It pushed the spot Gold Market for Japanese buyers back to a three-week low beneath ¥89,000.

The Gold Price in Yen had previous tripled since Jan. 2001 to reach a 24-year high of ¥96,000 per ounce last Wednesday.

The surging Yen today reached two-month highs versus the Euro and the high-yielding "carry trade" dollars of New Zealand and Australia. "The potential for a further carry unwind," reckons Michael Metcalfe at State Street, "is quite high now.

"These waves of risk aversion are washing through markets one after the other and seem to be hitting the credit markets first, then equity markets and then the forex markets.

"It's what happened in July and August and it seems to be what's happening again now."

As the Yen rose against all other currencies this morning, the US Dollar also bounced against everything else. It had previously lost value every week for the last ten, but by lunchtime in London, the bouncing Dollar pushed the Euro 1.3% below last Friday's new all-time highs to trade at $1.4650.

The British Pound fell faster still, losing more than 4¢ from Friday's quarter-century top – some 1.9% – to reach a two-week low beneath $2.0740.

Those moves in the currency market failed to stem the severity of gold's pullback for British and European buyers, however. For British investors wanting to Buy Gold Today, the metal dropped more than 3% from last Wednesday's new all-time record high to trade at a four-day low of £392 per ounce.

Gold Priced in Euros retreated below €560 per ounce, more than 2.5% beneath its 17-month peaks of last week.

"It's the long-awaited correction for gold," said one gold dealer in Singapore to Reuters earlier. "People have been saying the market is overbought."

"No bull market goes in a straight line," agrees Robert Rasbach of Ambrian Asset Management in London, whose programs include a $37 million precious metals fund, speaking to Bloomberg.

"With bull markets, you progress and then come off, and then progress again...[and] it's all coming together for gold.

"The Dollar is looking weak, jewelry demand is healthy and China is talking about diversifying its foreign reserves."

In the stock market overnight, Tokyo's Nikkei index continued to sink – driven into negative territory for 2007 to date – as export stocks were sold off in the face of that surging Japanese Yen.

Overall, the MSCI's Asia Pacific index lost 2.5% for the session. European markets were mixed and Wall Street futures held flat ahead of what may prove a quiet session on the Veteran's Day holiday. London's listed banking stocks turned higher after dropping 15% of their value in the first seven trading days of November.

In the broader commodity market, base metals all slipped and grains also fell in price as crude oil dropped $1 per barrel to trade around $95.

Saudi Arabia's oil minister said on Sunday that the OPEC oil cartel may consider raising output quotas before the end of this year to help ease pressure on oil consumers. But the surging oil price has already dented British businesses said the official statistics agency today.

Input prices for UK manufacturers rose 8.6% in the year to last month, said the ONS this morning, up from a 6.5% rate of increase in Sept. Output prices also rose, but only by 3.8% – showing yet again that, for now, manufacturers are sacrificing their profit margins to defend competitive offers.

"The strength of precious metals prices suggests that inflationary pressures are building up," says Philip Coggan, formerly of the Financial Times, in The Economist, "while the base-metals charts indicate, at a minimum, that the [global] manufacturing sector is losing momentum.

"The implication of all this is stagflation, the worst possible economic outcome for both equities and bonds."

Crucial data releases due from the United States this week will begin with pending home sales tomorrow, with Retail Sales following on Wednesday and Consumer Price Inflation on Thursday.

Figures for net flows of foreign money into US assets will be released on Friday.

Adrian Ash

BullionVault

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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

-- Posted Monday, 12 November 2007 | Digg This Article