By Jon Nadler
If Monday's action was led by the Shanghai sell-off, Tuesday's early market developments had all the markings of the Berlin bounce. German investor confidence rose to its highest level in three years this month, following readings of an expanding economy during Q2. No V-shaped recovery, this. Good enough for a pop in the DAX and other markets, that's for sure. And, of late, any time the equity markets either swoon or jump back to life, so does gold; in a cheek-to-cheek-close tango. This morning was no different.

The number of nations appearing to be finally making an exit out of the dark woods of 2007-2009 is growing, and along with them, the levels of confidence among global investors. France and Japan posted 'almost all-clear' economic flags last week. Prayers for no more macro-level surprises accompany every investment decision that is even slightly more than a pure speculative toss of the dice. Read: this is still recently cooled lava and treading lightly is beyond well-advised.

Gold prices rebounded by about 0.36% early on Tuesday, motivated primarily (again) by a dollar whose three-day long wind in the sails was diverted by a rise in the euro after the aforementioned German confidence level readings. A 75-cent gain in crude oil added support to today's bounce as well. However, just like the big picture recovery is still fuzzy around the edges, gold's comeback following its worst slide since spring looks somewhat like a toddler's first steps.

There is much strengthening still required, and balance still to be gained. And, yes, there will be a few sit-downs in the interim. For the moment, gold investors appear to be rooting for the same thing that stock buyers are hoping for: banishing the threat of deflation and opting for the (market) 'benefits' of inflation.

New York spot dealings opened with a $3.70 per ounce gain in gold. The yellow metal was quoted at $936.90 on the bid side, while players eyed he next delicate steps in the dollar-oil-stocks-gold dance, one that -as we said- normally does not include stocks in the picture. Silver was grappling with the task of maintaining the $14 level at the open, adding one penny to start at $13.99 an ounce. Platinum lost another $2 and opened at $1219 - that's nearly $100 lower than what the noble metal traded at, as recently as the 5th of the month. Palladium rose $1 to the $267 per ounce level.

The lack of growth in the gold ETFs continues to remain a concern for participants. It simply cannot be that every would-be pension firm or spec fund is gone fishing since early June. Confidence (or lack of same) in further and/or significant price gains beyond the mid $960s has to be part of the picture here. So does the utter disaster that Indian gold buying is turning out to be for the current year. There is no lipstick possibly thick enough to apply to this one, and even then it could not cover the cracks that have formed.

Jon Nadler is Senior Analyst, Kitco Metals Inc.

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