Spot gold prices rose above $660 per ounce immediately after the London close on Tuesday, bouncing nearly 1% as bond yields slipped and the US stock market rose.

The London PM Fix had earlier come in at $656.30.

Gold priced in Pounds Sterling recovered last week's closing level of £332.40 per ounce, even as the FTSE share index tanked 1.2% for the session.

Versus the Euro gold prices leapt to a near 10-day high above €493 as French and German stocks fell and the European single currency retreated from a fresh all-time high against the Japanese Yen.

The move also bucked the trend of gold prices matching the Euro's fortunes against the Dollar.

"We've seen the gold market push higher since the end of last week," said Gerry Celaya of Aberdeen's Redtower Research to Bloomberg earlier, "mostly because we think the market thinks the Federal Reserve will not be raising rates.

"We think they're wrong."

Indeed, "the Dollar bear market is coming to an end," according to Stephen Briggs at Societe Generale in London.

"The main driving force of the whole gold bull market has been the Dollar. If we see the single most important factor working in reverse, gold will struggle."

Briggs fails to spot the 10% average annual gains in gold vs. the Euro since 2000. Nor does his analysis note gold's 70% rise vs. the British Pound over the last seven years, nor the one-third rise in the Canadian-Dollar price of gold starting in early 2005.

As for the US Federal Reserve raising its interest rates, US housing data today showed the volume of new homes under construction falling 24% last month from May '06.

"Housing construction is in its worst recession since 1990-1991," as Bloomberg notes – and "the housing market story is positive for bonds," says one strategist.

Whatever comes of US Treasury bond yields, he anticipates lower US Fed interest rates ahead to prop up the housing market. Because after 17 hikes to 5.25% last summer, the number of US homeowners now facing eviction after defaulting on their mortgages hit a record in the first quarter. The surge was led by subprime mortgage defaults, according to the Mortgage Bankers Association.

"I bought 10-year US Treasury bonds last Friday," says another bond-fund manager proudly after picking up an average yield above 5.30%. Today saw 10-year yields retreat to 5.11% in New York.

"The housing market is weak," adds the bond fund manager – and the US Fed has signaled many times in the past that it would rather destroy the Dollar by slashing interest rates than allow asset prices to risk a serious depression.

For now, however, the Euro fell from a two-week high vs. the Dollar on the currency markets early Tuesday. The move came on weaker than expected ZEW investor sentiment data from Frankfurt, Germany.

The British Pound also slipped from its highest level since May 7. Tomorrow brings data showing UK money-supply growth – a gnawing concern for central bank policy makers, most especially in the UK, where its annual rate began rising at double-digits in spring 2005. Wednesday will also bring minutes from the Bank of England's June interest-rate meeting.

The technical picture in the gold market also suggests a move higher, too.

"Last week’s neutral activity in the spot gold market created a two-week harami reversal pattern," writes Christopher Langguth for Mitsui's weekly technical analysis report.

Harami patterns occur when volatility suddenly reduces from one week to the next – in this case, a volatile week of falling prices was followed by a flat and quiet week of trading.

As a result, says technical theory, the declining trend from early April may now reverse after the selling pressure on gold petered out last week.

"The gold price is still above a long-term up trendline that began in July 2005," Langguth goes on.

"If spot gold reaches $675.00 the buying should become heavy."

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