Gold slipped back after Europe closed Friday, but continued strength in New York kept it above $683 per ounce to record the highest weekly close since last May.

The metal had risen from Thursday's drop as Tokyo, Mumbai, Singapore, Dubai and then the European trading centers came online. When New York traders got into their stride the metal hit a new 9-month high of $685 per ounce.

At least one central bank will be pleased to have seen gold rise so strongly this week. The Reserve Bank of South Africa bought 20 tonnes in Jan., a move little noticed by the market but very significant given how this same strategy could affect Chinese purchases in 2007. (Click here to read more now...)

Why the sudden rally - gold's third big leap in three week? US inflation data said Wednesday that real interest rates in the US are falling again. And ongoing tensions over Iran's nuclear program drew "safe haven" buying according to the newswires.

The leading Western powers will meet next week to decide sanctions against Tehran.

"The sentiment remains firm with the weaker USD & stronger energy prices continuing to form a solid basis for gold to test $700 in the short to medium term," said Brandon Lloyd in Sydney for Mitsui on Friday. "Adding support to this argument was the news from the two largest gold producers, Barrick & Newmont, who are both forecasting a slight decline in their 2007 production...

"In isolation this is not expected to have a major impact on price, but when this is lined up with the increase in ETF demand, these two factors will help contribute to gold's move higher."

Barrick and Newmont – the world's largest gold miners – both reported a surge in fourth quarter profits on Thursday.

Newmont said net income tripled thanks to a rise in metal prices, and the stock rose 2% to a five-month high. Earnings per share rose to 49 cents against Wall Street expectations of 40 cents per share.

But the cost of sales rose to $322 per ounce from $232 a year earlier. Newmont says it will likely rise another 25% this year.

Barrick said that the total cash cost of producing gold rose to $287 from $221 per ounce.

In short, gold is becoming tougher to mine as labor and energy costs rise. There's also the long-term problem of declining reserves.

To read more about the "ugly big picture" facing global gold mining supplies in 2007, click here now...