Physical gold bullion prices held steady in Europe ahead of Monday's US open, trading in a tight range around $688 per ounce.

After six weeks of rising prices, that put spot gold prices within a Dollar of beating Feb.'s highest level. Above there, gold would be looking at an 11-month high.

"At the present [gold] seems to be tracking the US Dollar," says David Moore, commodities strategist at Commonwealth Bank of Australia, talking to Bloomberg from Sydney.

"It has an upward bias at the moment and if the Dollar remains soft against the Euro in the near-term you will see investors continue to support gold."

Thanks to Dollar weakness in the currency markets, gold for British investors opened today higher, but it was still 1.2% off its Feb. highs in Sterling.

Against the Euro, gold began today nearly 2.5% off its highs of six weeks ago.

But while gold has gained 6.5% in Dollar terms this year, the US Dollar index – a trade-weighted measure of the greenback versus the currencies of America's top trading partners – has dropped only 1.5%.

And gold has again beaten all paper currencies, gaining 5.2% versus the Euro and putting on 8.8% against Sterling – the same gains it's delivered against the Japanese Yen.

Looking ahead, short-term demand for physical gold bullion is due to rise sharply according to Wolfgang Wrzesniok-Rossbach at Heraeus, the German refining group.

"Both our colleagues in Hong Kong as well as those in New York report that stocks in the jewelry industry seem to be pretty low at the moment leaving manufacturers with no option but to buy even at current high prices.

"The situation is however slightly different in Europe, we have seen here pretty strong scrap sales by banks as well as smaller refiners."

The end of this week also brings the Akshaya Thrithiya festival to southern India. Last spring it packed Bangalore’s 2,000 gold shops “choc-a-bloc”, says the Times of India. (Click here to learn more...)

In the futures market, Japan's benchmark contract for gold delivered in Feb. '08 rose 1.7% today at the Tocom, putting one ounce above $692 equivalent.

Comex gold futures for June '07 delivery rose to $692.40 an ounce during the electronic session overnight, their highest level since the end of Feb.

Bloomberg reports today that 24 out of 35 gold traders, investors and analysts surveyed at the end of last week advised buying the metal.

Three said to sell, while eight were neutral.

Longer-term, further price appreciation looks likely given the current squeeze on real interest rates.

Many leading bond investors now expect short-term US rates to fall below 10-year bond yields. Bill Gross, head of Pimco – the world's largest bond fund – expects the switch to come about thanks to lower US interest rates, despite rising US inflation.

The collapse of the subprime mortgage market, plus a slowdown in the broader economy, will spur the Federal Reserve to step back from the last three years of higher rates.

And history says that a smaller gap between interest rates and inflation tends to increase investment in gold (click here to learn more...)

In Frankfurt, the yield of two-year European government notes reached a four-year high after president of the Bundesbank, Axel Weber, said he wants to revise Germany's economic growth forecast upwards.

But higher interest rates to date have failed to cap growth in Eurozone's money supply, now rising at 10% year-on-year – its fastest rate since late 2001.

In the United Kingdom, the same story. The City expects news tomorrow that UK inflation held near its current 16-year highs in March.

So most economists surveyed by Bloomberg now forecast another interest-rate hike from the Bank of England.

"[But] the big danger is that inflation proves to be stickier than they are expecting," notes Ross Walker, economist at Royal Bank of Scotland.

He thinks CPI inflation rose to 2.9% last month.

The growth in UK credit lending has remained near a 15% year-on-year clip, despite three hikes in the cost of Sterling since last summer. House prices have also risen by 15% in the last 12 months.

Asking prices rose by £8,000 ($15,750) in the last four weeks alone according to RightMove, the property database. (For more on the UK housing bubble, click here...)

And yet the biggest financial story in the United Kingdom today – bigger even that today's unprecedented bubble in credit – is that chancellor of the exchequer Gordon Brown "ignored advice" before selling half the nation's gold at rock-bottom prices in 1999.

The Sunday Times reported yesterday that a group of top gold analysts and traders – gathered together by the Bank of England – were shocked at the poor timing of the government's decision, right at the bottom of a 20-year bear market.

The government has since defied calls to release minutes and emails written at the time.

"We thought it was a disastrous decision; we couldn't understand it," says Peter Fava, then head of precious metals trading at HSBC.

Now Japan's finance minister says that the International Monetary Fund should sell its own gold reserves too – an idea floated by Gordon Brown and backed by Alan Greenspan recently.

"Japan has told the committee, 'Why not sell gold?'" says Koji Omi.

Possible large-scale sales might seem to threaten gold's 6-year old bull market. But as this article shows, the risks to gold prices shouldn't be overplayed...