THE US DOLLAR rose on news of fresh consumer confidence on Friday – or so the newswires and CNN claimed.

   In truth, however, the US Dollar fell hard against gold and dipped against Sterling. By the time London closed for business, gold had shot $5 higher per ounce from the opening in New York.

   Gold also rose against all other major currencies to end the week nearly $10 higher from last Friday. The US Dollar only managed to rise versus the Euro and Yen. Both of these low-yielding currencies got stuffed by traders thanks to their weak-kneed monetary managers in Frankfurt and Tokyo.

   "We shall not exercise strong vigilance," said ECB president Jean-Claude Trichet after he failed to raise Euro rates last week. "We shall do just as the Ministry of Finance commands," said the Bank of Japan – in effect, if not in so many words – on Thursday. The BoJ defied all forecasts, both in the bond market and from analysts, when it chose not to raise Yen lending rates from 0.25%.

   Barclays Capital now reckon the Yen will weaken to ¥125 per Dollar in the coming months. Hedge fund managers still running the "carry trade" – and selling Yen to invest in higher-yielding currencies – will be howling with laughter if Barclays proves right.

   Gold, on the other hand, continues to offer Japanese investors and savers the best protection against the tumbling value of their currency. It has now risen more than 16% from this time last year versus the Yen. Gold also ended this week more than 13% higher for US investors, too.

   Euro and Sterling prices are little changed from Jan. '06 today. But if the Euro continues to weaken and follow the Yen, gold is likely to offer a valuable hedge. And British investors still not invested in gold might want to review their position this weekend as well.

   On Tuesday, the UK government said inflation is now rising at its fastest pace in 15 years. The last time Sterling lost purchasing power so quickly, UK interest rates were above 10%.

   Today, however, the banks are paying just 5.25% to British savers. And with retail prices rising at an annual 4.4% clip, cash deposits are now losing money for higher-rate tax payers. Basic rate taxpayers have slipped under water, too. Their bank savings are shrinking by 0.6% on an annualised basis.

   US investors aren't gaining much advantage from higher interest rates either. Those consumer confidence numbers only added one point to the S&P 500 index, leaving it barely 0.3% higher for the week. Bond prices meanwhile fell back as the chance of lower Fed rates was priced out of the market.

   Even oil sinking below $50 at one point this week failed to help fixed income investors. US citizens holding Dollar assets just can't seem to win!

   "Bonds usually rally on hints that inflation will ebb," said Reuters, scratching its head. "But as oil has extended its slide, investors have sold US Treasuries, fretting that cheaper energy will boost economic growth, and with it, inflation."

   Confused? Most professional gold analysts seem confused too. They still believe the metal is tied to the fate of the Dollar and oil. Yet gold has held above $600 per ounce since November, while crude oil has dropped by 20%. And the circular argument of saying gold is tied to the Dollar – simply because gold is most commonly quoted in Dollars – would be funny if it weren't so misleading.

   The best-performing forecaster of the last three years, Ross Norman at TheBullionDesk, says gold could hit $850 this year – averaging $716 for 2007 as a whole – because of a weaker US currency, rising oil-price inflation and geopolitical risks.

   Adam Graf from Federated Global Investment Management Corp. in New York is more bullish. He thinks gold will average $755 per ounce.

   "A weakening US dollar, continued fund flows and lower net central bank selling should drive pricing higher in 2007," he says, "while global liquidity levels should transition from a supportive to neutral influence."

   All told, 29 analysts polled by the London Bullion Market Association (LBMA) have raised their price targets for gold in 2007 after undershooting last year's $603 average. Try asking for Sterling, Euro or Yen price targets in gold however, and you can see why the Dollar always figures so prominently in their thinking.

   What's more, warns the latest Fortis Metals monthly, this cautious bullishness amongst gold analysts "presents a simple option for contrarian-minded investors...

   "With a broad consensus that gold prices will climb higher as a consequence of an expected weaker US dollar and yet more geo-political jitters, it should be time to go short.

   "Yet contrarians might be wrong this time, or at least premature. Much of the bullishness that fixates on gold derives from pent-up frustration at years of record low prices, and this is still working itself through and might have further to go," they explain.

   Here at BullionVault, we set no price targets and offer no year-end forecasts. But we agree with Fortis's conclusions.

   We too have been concerned by the seemingly bullish consensus on gold. Deutsche Bank and Merrill Lynch have both raised their price forecasts. Bloomberg says that 22 out of 31 finance professionals surveyed last week all advise buying the metal. The Financial Times notes that institutional money has a "growing love affair with gold..."

   But if gold were truly becoming a "crowded trade" right now, you wouldn't know it from the weight of investment money alone.

   The exchange-traded gold funds (ETFs) for example, barely register against the value of other stocks and shares today. In the UK, LxyOr GBS is only worth the same as Grainger Trust, a mid-cap real estate company. In the US, StreetTracks GLD is equivalent in market-cap to Mattel Inc., the toy manufacturer.

   Hardly the stuff of bubble tops!

   And there are three further good reasons to discount the threat of "hot money" in gold this year, we believe. Yes, the five-year uptrend may flag between now and Christmas. No investment is without risk, and no analysis should be taken for gospel.

   But as we report in the cover-story for MoneyWeek magazine this weekend, gold offers a unique form of insurance against today's over-heating debt and credit markets.

   This insurance policy may not pay out in 2007, of course. But if the bubble in derivatives and leveraged bonds only grows larger, gold will still prove a secure physical asset likely to keep rising in value, thanks to the simple rules of supply and demand.

   You can read our full and detailed analysis now. Simply click here...