Gold poked its head above $635 at the start of London trade today, after consolidating yesterday's $10 rise overnight in Asia.

The February gold contract in New York climbed to a 3-week high on Wednesday. But these higher prices have invited profit-taking by some physical dealers in Indonesia and Thailand, according to Reuters.

"I must say demand from India is quite good but there are sales of scrap in Asia. That's why the price can't go much higher," said one dealer in Singapore.

Spot gold still opened today's European session much higher from last Thursday, however, climbing 3.7% for Dollar and Euro investors. Sterling buyers were 1.7% better off in gold. The price in Yen for Japanese investors stood 4.4% higher!

The benchmark gold futures contract rose to its highest price since July after the Bank of Japan kept interest rates on hold at 0.25% for another month. The Nikkei stock index hit a 9-month high on the news.

The Yen, however, fell to a four-year low against both the US Dollar and Sterling. That's why "the technical trend has strengthened," said a Japanese analyst to Reuters. "Gold prices in general were [also] helped by the recovery in oil prices."

Yes, oil has stepped up from its 19-month low below $50 per barrel on forecasts of a cold snap in the north-eastern United States. But gold and oil are NOT – repeat NOT – moving together at the moment.

Since Nov. '06 – when gold last traded below $600 per ounce – oil has dropped 20% of its value. The CRB index of the wider commodities sector has now given back almost its entire gains of the last two years.

"My motto [in gold] is buy the dips," says Adrien Biondi, global head of precious metals at Commerzbank International SA in Luxembourg. "The fact that there is [gold] buying around $600 and two years ago there was buying around $300 tells me the industry has accepted the higher price."

Elsewhere on the currency markets, Sterling just made a new three-year high versus the Euro above €1.520. Last week's interest-rate hike in the UK – plus its runaway inflation data on Tuesday – have knocked gilt prices lower, making Sterling yields the most attractive of any major currency today.

Only Australian government bonds offer more to developed world bond investors. The gap between German and UK yields on short-dated government debt now stands at 1.65%.

That's wide enough to drive a bus through compared to the tiny returns many professional investors are earning for their clients right now. But could the cross-Channel "carry trade" become a crowded bet in 2007...?

As long as it keeps paying, no one will care. But when it stops making sense – click here to read on...