The spot gold market rose above $655 per ounce on Friday – a high for the week – before closing Friday in London above $650 per ounce.
The move higher came after gold held steady in Asia overnight, and then rose against all currencies as the European session began.
Just before the US open, the Dollar moved lower on news that the cost of living for US consumers rose 0.4% last month.
So-called "core" inflation – which excludes food and energy costs – rose 2.7% from a year earlier.
"The figures make it tougher for the Fed to lower rates should the mortgage crisis cause the economy to stumble," said Reuters.
But leaving Dollar interest rates on hold will only eat into the real rate of return – inviting gold prices and expectations of further inflation ahead to rise. (Click here to read more...)
The fall in the Dollar sent the Euro above $1.333 and pushed Sterling to $1.950 for the first time in two weeks.
In the gold market, that left prices little changed for European buyers.
Gold versus Euros touched €490 at best as the US opened. Sterling prices twice tested £335.60 per ounce.
"The big problem is that the US economy is showing some significant signs of slowing right now," noted Neal Ryan, director of economics at Blanchard.
"The real estate/homebuilder/mortgage debacle isn't helping.
"Can the Fed continue to walk down the middle of the road on the growth or inflation equation without being hit by trucks traveling in both directions?" (Click here to find out...)
Central banks everywhere face another dilemma in the meantime. The World Gold Council reported Thursday that official holdings of gold by governments and their agents fell in 2006 for the eighth year running.
Gold reserves at world central banks have now reached their lowest levels in 59 years, down 1.2% from 2005 to 867.6 million ounces.
Private individuals, on the other hand, are growing their gold holdings – and will continue to do so according to the latest research from a highly respected consultancy.
"Investors around the world continue to buy large volumes of gold in bullion, coin, and jewelry form," says CPM in its 2007 Yearbook.
"The amount of gold that may be purchased may decline from 2006 levels during 2007, but the overall pace of investment demand is expected to remain very high by historical standards."
Between 2001 and '06, says CPM, investors grew their gold holdings by 241.5 million ounces.
That's nearly a quarter of outstanding private gold investment, all acquired in just 5 years.
(Why are private citizens growing their gold investment even as their governments sell the metal? Click here for a full report...)
Back in the spot market, and speculative "long" positions in the futures market remain high by recent standards. But the bullish consensus amongst paper speculators is falling.
The weekly Commitment of Traders from the CFTC in the US reports that non-commercial traders held 101,698 more "long" than "short" contracts by Tuesday, down nearly 30% from the previous week.
"I don't think people are sure about direction," said a Hong Kong gold trader to Reuters early Friday.
"We have expected to see more gains in Japan but instead we see some selling."
Gold for delivery in Feb. '08 closed unchanged on the day. The Nikkei stock index, meantime, slipped 0.3%.
But where is gold headed next? For a detailed technical view of the current gold charts, click here now...