THE PRICE OF WHOLESALE gold bullion eased back from yesterday's new record highs in London on Tuesday, unwinding Monday's 0.7% gain as world stock markets crept higher ahead of the US Federal Reserve's latest policy decision.

Major-economy government bonds rose, and crude oil fell.

Silver prices slipped to three-session lows beneath last week's close of $20.75 per ounce.

"At these rarefied levels, investors continue to be wary," says a note from Swiss refinery group MKS's Finance division.

"While the yellow metal ought to continue to rise, it will be a volatile trip."

Volatility has been absent, however, from the last 7 week's 10% rise in gold prices, with the Chicago Board of Exchange's new CBOE/Comex Gold Volatility Index (ticker: GVZ) closing Monday at just 19.

The CBOE's new oil volatility index ended last night above 32. The VIX index of volatility in S&P500 stock options stood at 21.5.

"This gold rally has been as orderly as the March of the Penguins," says CNBC senior editor Lori Spechler – "straight line, all participants headed north."

"It seems like gold is being driven more by investors just deciding there aren't any compelling alternatives," says Douglas Porter, deputy-chief economist at BMO Capital Markets in Canada.

"One of the things that has bothered people is the possibility of further quantitative easing by the Federal Reserve Board, which essentially means injecting further liquidity into the market," says Bank of Nova Scotia's Patricia Mohr, also speaking to the Toronto Star.

"Some gold investors expect to see new rivers of currency offered" by today's US Federal Reserve decision on monetary policy, notes Angela Prunecchi on the trading desk of Italpreziosi in Arezzo, Italy.

But while 54 out of 63 economists surveyed by Bloomberg expect the Fed to retain its promise of "exceptionally low rates for an extended period", sixty of those experts don't expect any new quantitative easing today.

"We can probably expect that they won't come out with additional measures," agrees commodity trading chief Darren Heathcote at Investec in Sydney, speaking to Reuters.

"In that case, you might see the gold price retrace some of its recent gains."

US Treasury bond prices rose meantime Tuesday – and so yields fell – ahead of the Fed announcement.

European government debt also rose after new bond auctions by Ireland, Spain and Greece attracted strong investor demand, but only at higher yields than last time they went to market.

Gold priced in Sterling hit new 14-week highs above £826 per ounce after the government reported an August record for its budget deficit.

The Euro gold price fell, however, as the single currency rose sharply on the forex market, breaking back above $1.31 to the Dollar and capping gold at €31,300 per kilo.

"I don't think [gold's] going to stop," said Harmony Gold's CEO Graham Briggs to reporters at this week's Denver Gold Forum today.

"I think gold financial issues in the world demonstrate the basic principle of gold – that it's basically a good investment."

Taking part in the Forum's opening debate last night, Paul Walker of the GFMS consultancy said a short-term "collapse" in the gold price would require higher interest rates from the world's major central banks – an event due "some time within the next five years," according to Lawrence Williams' report for MineWeb

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

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