The price of London settled gold bounced to $1,348 per ounce Tuesday morning, halving an earlier 0.9% drop after China's most active gold contract closed below that world benchmark for the first time in 2013.
Overnight trade was "very dull" according to one dealing desk.
Dollar gold then dropped $12 per ounce in 10 minutes, hitting a low of $1,341 – some 1.5% beneath Monday's new five-week high.
The Reserve Bank of India earlier hiked its key interest rate for the second month running.
Shanghai's most actively traded gold contract closed the day equal to $1,350.15 per ounce, below the international spot market's then price for London settlement of $1,353.70, a rarity last seen in late 2012 according to dealers quoted by Reuters.
Prices on the Shanghai Gold Exchange stood at a $7 premium to London settlement last week, peaking $30 above that international benchmark as the price slump of April to June saw record imports of bullion to the world's second-largest consumer nation.
"Gold achieved the retracement level of $1,362 with toppy indicators," says a chart analysis from French investment bank and bullion market-maker Societe Generale. "Expect a consolidation."
"Immediate upside pressure," counters the technical analysis team at Germany's Commerzbank, "will be maintained while the gold price remains above the $1,329.85 Oct. 19 low on a daily chart closing basis."
"Gold remains in an uptrend off the Oct. 15 low at $1,251," says Scotiabank's New York desk.
"We remain bullish...targeting a full retracement to the $1,433 high" hit in August.
Over in China, meantime, interbank loan rates eased slightly from four-month highs after the People's Bank said it would inject cash to ease a credit crunch, but only if necessary.
"The [recent] rise in borrowing costs plays a crucial role" in China's metal pricing, said one Hong Kong dealer to Reuters. "People don't want to keep the metal and they try to dump it to raise cash."
"It really is driven by money markets," the newswires quotes another.
Analysts at ANZ in Australia said today that "We continue to view gold as precariously placed, while physical demand for the metal remains soft," pointing to "weak demand from China and continued ETF selling" by Western institutions.
So-called "term repo" rates in India – under which the central bank will lend short-term money in return for government bonds and other collateral which are then repurchased by the borrower – were hiked for the second month running today, reaching 7.75% as part of the Reserve Bank of India's quarterly market review.
The amount of money available through such repurchase deals was doubled, however. Bank rate and a key co-operative savings rate were cut.
"Reducing [those rates] and improving the liquidity provided through term repos will reduce short-term rates," notes Gagan Banga, CEO of mortgage lender Indiabulls Housing Finance, "which will keep interest rates on home loans stable."
But former IMF chief economist and new governor of the Reserve Bank, Raghuram Rajan "is attacking [inflation] directly, anchoring inflation expectations," says Radhika Rao, economist at DBS. "You've seen the Rupee react positively, with the stock market and sentiment on the whole."
The BSE Sensex index of Indian shares today added almost 2% to touch three-year highs.
The Rupee strengthened a little to extend its 12% rally from August's record lows vs. the U.S. dollar.
Gold in Indian rupees also rose further, however, pushing 22-carat gold in Mumbai the equivalent of $1,470 per ounce.
With the Indian government's anti-gold imports policies effectively closing the world's heaviest consumer to legal supplies, Sify Finance today put 24-carat gold in Hyderabad at the equivalent of $1,600 per ounce.
"There is a major fluctuation in the gold rate and raw material availability is not there," says Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation (GJF)
"For this Dhanteras" – which marks the start of the peak gold-buying festival of Diwali on Friday – "we see a 90% fall in demand," Soni says.
On the contrary, however, the Business Standard in Mumbai quotes local retailers saying that pre-Diwali trade has already risen by 15% from the same period in 2012.