Gold traded just below $660 in Asia on Friday, regaining its 7-month highs above $661 just as London opened for business.

"This is going to be critical in the next 24 hours," reckons Jonathan Barratt, managing director of Sydney-based Commodity Broking Services.

"The market has to move on and close above $662 in order to establish a new and higher range."

Gold's range above $645 meantime looks very solid today. And against the other major currencies, gold's sharp rise in US trade on Thursday shows strong investment appetite for the metal, commonly seen as the ultimate inflation hedge and "safe haven".

Yesterday brought fresh saber-rattling from Tehran over the UN's threat of sanctions unless Iran closes its nuclear enrichment program. The situation is due to come to a head later this month, when the UN Security Council's latest deadline expires.

And in the United Kingdom – where credit growth is running at 15% year-on-year –  the lack of an interest-rate rise on Thursday has pushed the Sterling price of gold up to a new 7-month high above £339 per ounce.

At 12:00 GMT yesterday, the Bank of England said it would keep Sterling interest rates on hold at 5.25%. Later in the afternoon, the European Central Bank (ECB) in Frankfurt then failed to raise its rates.

But the accompanying comments from Jean-Claude Trichet, the ECB's president, hinted at further hikes ahead from the current 3.5% if Eurozone wage claims keep rising.

Sterling promptly sank on the currency markets, dropping from €1.515 to just €1.499 by today's London opening. Versus the US Dollar, it fell from above $1.972 to below $1.950.

The Euro had been rising since Tuesday's low of $1.291. But it also pulled back against the Dollar, with traders' chit-chat suggesting that the G7 meeting in Essen, Germany, this weekend will fail to address the weakening Yen.

Deprived of government intervention to play off against, the market has been buying Dollars. Gold has risen much faster still.

That's pulled the Euro back below $1.300 early Friday, and pushed the Euro price of gold up to match last week's 5-month highs above €508.50 per ounce.

Today's action in the gold market may get support from the rising oil price. Crude for March delivery rose $2 to close at $59.71 per barrel at the Nymex yesterday – its highest price in 2007 so far.

Base metal prices – another key driver of global price inflation – are also rebounding after a deal struck between a major London-based hedge fund and its clients.

As reported by BullionVault late last week, Red Kite's base-metals fund may be down by 20% for this year so far, thanks to a sharp drop in copper and zinc prices. Now its investors have accepted Red Kite's request to extend the fund's notice period for withdrawals from 15 days to 45 days.

"Concern that Red Kite may be forced to sell its copper and zinc contracts [to repay withdrawing investors] has eased," said Cai Luoyi, head of research at China International Futures in Shanghai to Bloomberg earlier.

"One-and-a-half months is long enough for the copper market to reverse its downward trend."

To read more about Red Kite's predicament – and the impact of hedge fund traders on the short-term gold price – click here now...