SPOT GOLD PRICES dropped $6 at the Wall Street open on Friday, sinking to close the week in London at $656 – a three-day low.

   Gold stood higher, however, from last Friday's close.

   The day's low was also higher than the recent low at $637.50 hit on Weds 14 March.

   The uptrend remains intact, in other words, on a technical analysis. (For a longer-term technical view, click here now...)

   Friday's move came as the US Dollar firmed and bonds sold off following news that turnover in the housing market picked up sharply in Feb.

   Gold also clipped its six-day winning streak as European stocks continued to gain

   The top 300 shares in Europe closed the week 4.5% higher. Gold gained only 0.4% from last Friday. (Could gold's surprise correlation with paper assets be nearing an end? You can read more here...)

   US stocks, however, were little changed by the news that sales of previously owned homes in the US rose 3.9% in Feb.

   The data's only serious outcome, in fact, looks to have been the drop in gold – alongside a relieved grin amongst mortgage-bond traders.

   "Most of the housing adjustment is completed," reckons one Californian economist interviewed by Bloomberg.

   But his clients may wish to delay buying fresh subprime-backed securities for the time being.

   "House prices to recover next year," said the London Times in Nov. 1989.

   Six years later, the average British home had lost one third of its value. The resulting recession put more than one million people out of work.

   (US investors and homeowners can read the full warning from history here...)

   Meantime in the gold market, "traders are using the home sales numbers as a good excuse to sell some gold on Dollar strength," reckoned Matt Zeman, a Chicago trader for LaSalle Futures, on Friday morning.

   Yet gold also fell back versus the other major currencies.

   Spot gold prices closed the week lower against Sterling at £334. They ended the last five sessions 0.6% higher against the Euro at €494 per ounce.

   Short-term gold traders take note: Friday's drop came as April contracts in the futures market neared expiry.

   According to the CFTC data, speculators had previously been rolling their positions onto the June contract.

   But the sudden drop on Feb.'s housing news may now see hedge funds and other short-term "paper gold" players quit for the time being.

   If this proves the case, it won't matter to longer-term buyers, however.

   "Our view is still very, very clear," as Paul Walker, executive director of the GFMS consultancy, put it in a radio interview on Wednesday.

   Speaking to Moneyweb's Power Hour in South Africa, "the building blocks are there for higher prices," said Walker.

   "We think we’ll see gold prices reach the $700 level."

   "Over the last few years, we have seen the price running up at this time of the year."

   For a full analysis of the demand and supply outlook for gold in 2007, courtesy of BullionVault, click here now...