Gold slipped back from its new highs for this rally as London closed today, dropping below $650 for US investors as it dipped beneath £330 in Sterling and €500 versus the Euro.

New York traders pushed the metal as high as $654 per ounce, but the loss of European demand stemmed the bull run.

Even so, today's surge – taking gold 1.3% higher against the Dollar at one point – shows strong investor demand at these levels.

"The market has broken out," said Michael Guido, director of hedge-fund marketing at Societe Generale in New York to Bloomberg earlier.

"There are very strong flows from the ETFs and the hedge funds."

Professional analysts have also latched onto gold's strength versus currencies other than the Dollar. Rising oil prices are still cited as a key reason for this week's powerful rise, too.

"We've seen commodity prices recover, and that's encouraged investment in gold," noticed John Reade, an analyst at UBS in London, today. "Gold's strong in other currencies [too] and that's encouraged buying."

Buying has of course encouraged stronger prices, but never mind that Reade has things the wrong way round. "A holistic picture of the market hints of a major rally in gold," says one analyst in Dubai. Crude oil meantime broke above $56 per barrel today after President Bush said he wants to increase the size of the US strategic oil reserves.

The Russian central bank also said today that its gold and foreign currency reserves increased $1 billion to more than $302 billion in the week up to Jan. 19th. Mining companies are meanwhile buying back gold production they've already sold forward – before it was mined – adding to demand in the physical gold market.

"I'm hearing there are some buy programs," one Swiss fund manager told Reuters earlier. "That's why gold is quite well supported."

Take Gold Fields, for example, the world's fourth-largest gold producer. It's spending $528 million to claw back gold sold before it was mined from the Western Areas, a mine it just bought.

These forward sales of gold from the Western Areas were terminated at an average spot gold price of $622 per ounce. Gold has since risen to $654 per ounce today. That gap between the two prices represents a loss to the miners – and extra demand amid today's rising gold market.

Thus against the Australian Dollar, gold is now trading at its highest price since Sept. Versus the Swiss Franc, gold has now hit its highest levels since June.

Gold's spike of May '06 took it above $720 per ounce and also saw 26-year highs in all other major currencies. Could we be set for a repeat – or more?

For a full analysis of the gold market in January 2007, plus detailed news on likely demand and supply drivers right now, click here and read on...