Gold declined through the first hour of New York trading yesterday, briefly dipping below the $700 mark, but then pushed quickly back over $720 and spent most of the day hovering around that level, finishing at $721.10, down $7.10. Overnight, gold is sharply lower.

Platinum followed the same pattern, hitting $780 at its low point, then climbed through both the rest of the COMEX and the Globex to end at $813/oz., down $30. Overnight, platinum has fallen further.

Silver had a day of sudden and very steep ups and downs, falling to $9.20 early in New York, busting back to $9.80, crashing to $9.30 in the Globex, and finally rallying yet again to close at $9.66/oz., up 17 cents. Overnight, silver has dropped off steeply. (Click here for charts)

Again the precious metals diverged, with platinum taking another heavy hit, gold fighting back to end with only a modest loss, and silver actually posting a nice gain on the day.

Gold’s fans were likely a bit disappointed the metal didn’t do better, in light of the dollar pulling back against the euro and the price of crude rising. However, it was certainly a positive development to see the metal bounce decisively off of $700.

The struggle between gold’s traditional safe haven status in a crisis like this one, and the need of overleveraged hedgers for liquidity, is obviously still playing itself out.

Right now, “The name of the game is to raise dollars,” said Frank McGhee, of Integrated Brokerage Services in Chicago. “People will sell their winners to fund their losers. The best performer since the financial crisis began has been gold.”

There is a lot of unwinding to do. And, while gold’s strength yesterday afternoon was a good sign, it may not be able to resume its bull run until those who are sitting on dollars begin to feel the pinch of the rising inflation that is sure to come with the astonishing infusion of cash into the system by governments.

The bright side, if there is one, is that, “For the moment, gold is holding its relative strength,” says Ron Goodis, of Equidex Brokerage Group in Closter, New Jersey. “Gold is falling more slowly than everything else but everything is falling. In a credit crisis, people don’t want anything.”

Those with strong gold positions can take some comfort in knowing that gold will always hold value better than any ‘asset’ made of paper.

Source: Gold Slides, but Silver Gains