Gold dropped through last week's closing level versus all currencies today as New York opened for business. But the outlook remains strong – both short-term and for 2007 as a whole.

By 13:30 GMT gold had dropped nearly $3 from the top of today's Asian trading range to $634 per ounce. The drop was matched against Sterling, Euros and Yen.

"The gold market is consolidating this week and looking for some direction, perhaps from external markets, for making another move on the upside," reckons David Holmes, director of precious metals sales at Dresdner Kleinwort.

"I think it's a very positive price and I am just waiting for another round of investor buying. Hopefully that will materialise soon. For me, the bias is still on the upside."

Professional speculators are holding out for rising gold prices this week. After Friday's sharp jump to its highest level in nearly 3 weeks, gold is expected to rise by 19 out of 30 traders, investors and analysts surveyed by Bloomberg News.

A recovery in oil – driven nearly 1% higher to $53 per barrel on falling temperatures in the north-eastern United States – may also buoy the gold price, according to some observers.

"The recovery in oil helped gold [Friday]," said Takashi Ogura, a manager at Kanetsu Asset Management in Tokyo to Reuters earlier. "We are seeing steady bargain-hunting emerging on price dips."

"The shape of the chart looks strong, especially after recovering from a low near $600 reached shortly after the start of the year," he added. Japan's benchmark gold contract rose today, hitting ¥2,505 – an 8-month high.

US speculators certainly anticipate further gains ahead. They raised their long futures positions by nearly a fifth in the week to Jan.16.

And what about gold supply? Peter Hambro Mining, rising star of London's listed mining stocks, said this morning it grew production by 5% in 2006. Realised gold prices rose 33% to $586 an ounce.

POG, which mines for gold in Russia, said the rise in output exceeded its expectations. The outlook for 2007 is "encouraging". But all it would say about the disputed mining licenses revoked by Russia's environmental agency last month was that they “are now resolved”.

More concerns over future gold supply in Argentina, too. After accounting for less than 1% of world mining output in 2006 on Virtual Metals data, Argentina's gold miners have been hoping to double production in the next few years, especially with Barrick's huge Pascua Lama site due to begin operation.

But "the metals boom faces strong opposition by anti-mining campaigners," reports Reuters today. "Local campaign groups have already scuttled one major gold project and industry leaders see them as the biggest challenge to expansion."

Virtual Metals forecast a dip in Argentinean gold output in 2007. Worldwide, the problem of environmental campaigners blocking exploration and production is only one threat to extra mining supply.

For a full report – plus detailed analysis of likely demand growth for gold in 2007 – click here and read more now...