Gold fell back from its third overnight rally in four days in London trade on Thursday, dropping 1.1% against the Dollar as Asian stock markets closed the day flat but European shares ticked higher.

We don't feel that this downward pressure can persist, given ample global liquidity and low long-term real interest rates, says Standard Bank's commodity team in a client note.

The US Federal Reserve last night extended its policy of zero-interest rates and $600 billion in Treasury-bond purchases, promising for the 22nd month running to keep Dollar interest rates exceptionally low...for an extended period.

Recording a London Gold Fix this morning of $1337.50 per ounce, the Gold Price in Dollars today stood 60% higher from Dec. 2008, when the Fed first cut its key lending rate to 0.25% and below.

Silver Prices also slipped from an overnight rally, but stood more than 155% higher from 25 months ago at $27.39 per ounce.

As long as the Fed keeps its loose monetary policy, it will be positive for gold, reckons Singapore analyst Yingxi Yu at Barclays Capital, speaking to Bloomberg.

The Fed statement reflects uncertainty in the economic outlook, which has supported gold in the past couple of years. We view the price decline as a short-term correction.

Over on the currency market Thursday morning, the British Pound recovered the last of this week's losses to the Dollar - knocking gold for UK buyers back down to £835 per ounce - as the Euro hit new 3-month highs against the US currency.

Rising above $1.37, the Euro pushed the Gold Price down towards yesterday's 12-week low near €31,100 per kilo, despite new data showing Eurozone consumer and economic confidence both falling.

Wheat prices meantime eased back from new record highs and cotton jumped 3.5% - equal to the limit up maximum move allowed by the ICE Futures exchange - to hit fresh all-time highs in London trade.

Europe's Brent crude benchmark traded at a record-high premium to US crude oil, priced just shy of $100 per barrel.

[Imported inflation] can no longer be ignored, said European Central Bank member Lorenzo Bini Smaghi in a speech in Bologna, Italy today.

Contradicting the no response policy advocated earlier this week by Bank of England governor Mervyn King, It is necessary for the dynamics of costs and prices in advanced countries...to be significantly more contained than in emerging economies, said Bini Smaghi.

Otherwise, monetary policy has to become more restrictive than it should be.

Belgian government bonds meantime slumped on Thursday after the mediator asked by King Albert to resolve the country's 228-day post-election political stalemate resigned.

The Japanese Yen also fell hard, losing over 1% to trade at two-week lows to the Dollar, after the Standard & Poor's rating agency downgraded Tokyo's debt one notch to AA-, citing record-high national debt and persistent deflation that's left the Japanese economy no larger today than it was in 1993.

As the [global] economy improves, you're going to see real interest rates move up, reckons Goldman Sachs analyst David Greely in New York, and that's going to cap...the Gold Price.

We think it is prudent for gold investors to begin to prepare for gold prices to peak.

The market is starting to believe that the global economy can easily wean itself off of cheap money, counters Daniel Brebner at Deutsche Bank, also speaking to the Financial Times.

We are not so confident that this is the case.

The volume of Gold Bullion held in trust for shareholders of the giant SPDR Gold Fund ended Wednesday unchanged from Tuesday's 8-month low of 1229 tonnes.

Losing more than 55 tonnes since late Dec., the GLD Gold ETF has seen the sharpest month-on-month drop by tonnage since spring 2008.

In percentage terms, the big Gold ETF's tonnage has now dropped by 4.7% in the last four weeks. It fell harder month-on-month in July 2009, each of May, Aug. and Sept. 2008, May 2007 and May 2006.

By asset value, the SPDR Gold Trust fell harder last July.

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