Gold dropped $5 per ounce from last night's 7-week peak by the AM Fix in London today.

After ticking lower in Asia it continued to fall versus all currencies, hitting $643 per ounce before nudging higher.

But "the sentiment in the market is still very positive," as Frederic Panizzutti, precious metals analyst at MKS Finance, said earlier.

"Physical gold activity should be sound below $640. There is great potential to try again to break the $650 level...

"We are trading in a wide range of $630-$650. The market around these levels are pretty unstable but we believe that we are in a bull trend."

Gold broke the key $645 level just as Tuesday's European session was drawing to a close. Versus the Euro, gold hit levels above €496 last seen in September. The Yen price of gold continues to look strong at 8-month highs.

Even so, gold analysts remain focused on the US Dollar. Gold may find support at $636 and $638 an ounce, according to Tobin Gorey of Commonwealth Bank of Australia. Gains could be capped around $650 per ounce.

"I've had my doubts without the sort of other direction from oil or US dollar," said Gorey. Other professionals disagree.

"The buying [on Tuesday] was reported as being predominantly from the funds who will no doubt be watching the market closely for further signs of a break-up above the technical chart resistance close to $648 an ounce," reckons Investec in Sydney.

Facing chart resistance or not, gold certainly faces severe threats to supply as 2007 begins. On Monday, Bolivian President Evo Morales sent a bill to his Congress asking to raise taxes on foreign mining firms.

Meantime, "this is technical selling," said Kishore Narne, head of research at Mumbai-based Anand Rathi Commodities to Bloomberg as gold ticked lower in Asia today.

"There is resistance at $647 level and I do not expect any fresh buying unless gold is able to break the $647 hurdle."

And longer-term? For the big picture of gold demand and supply in 2007, click here and read on – for free – now...