Gold gave back half of yesterday's gain vs. the Dollar on Friday morning in London, heading towards the weekend some 1.9% higher from last week as government bonds rose and European shares held flat overall.

Gold priced in Euros broke above €800 an ounce, nearing yesterday's 1-week high – and only 1.5% below its all-time peak of Dec. – after Thursday's EU summit ended with no action on Greece's deficit crisis.

The Euro today fell to a new 9-month low on news that Germany's economic recovery stalled in the last quarter of 2009.

"Clearly, the Dollar price of metals does badly when the Dollar is rising," says the VM Group's latest Fortis Metals Monthly report.

"There is [also] good reason to believe the price of metals in other currencies will fall" when the Dollar rises on the forex market, the London consultancy adds, "because there will be a real impact from a rise in the Dollar price, and the Dollar area is important for producers and consumers of most metals."

Reviewing the Dollar's three bull runs since 1980, however, metal prices measured in a basket of other leading currencies "actually tended to increase" in 1995-2002.

In the Dollar's bull run of 2008-2009, all metals fell "except Gold".

"In Euro terms," notes the latest Weekly Commodities from French bank Natixis, the recent "fall in Gold Prices was only 2.5%, demonstrating the importance of your perspective when considering the use of gold as a safe-haven store of value.

"Gold may be an excellent store of value in protecting you from debasement of your own currency, but it may be of little use when it is someone else's currency that is under pressure."

As Germany today reported zero GDP growth for the last 3 months of 2009, the 16-nation Eurozone said industrial production shrank 5.0% year-on-year in Dec.

That helped drive the Euro down through $1.3600 – a level which set a 28-month high after first being hit at the end of the Dollar's 2002-2005 bear market.

Here in London, meantime, "Investors' patience with the UK's deficit [may be] closer to breaking point", notes Marc Ostwald at Monument Securities, adding that the Bank of England could stem the rise in interest rates by extending its £191bn purchase of government debt.

But "If investors are [thus] frustrated in venting their anxieties," warns Ostwald, "the risk is they will find an alternative channel through the currency market, where the dynamics of their selling may be less easily controllable."

Ten-year UK gilt yields today slipped back to 4.01% as prices were bid higher and the FTSE100 stock index cut this week's rise to 1.7%.

Gold priced in Sterling eased £5 lower after very nearly touching £700 an ounce on Thursday.

"We see a number of headwinds for investors in Gold, most notably potential increases in interest rates," said global banking & markets analyst Daniel Major at the Royal Bank of Scotland in a report this week.

"The opportunity cost of investing in commodities is going to be important."

Currency strategists at RBS – now 84% owned by the UK government, and set to award £1.3 billion in bonuses for recording a 2009 loss of £7bn – are forecasting "further strength in the Dollar against the Euro," says Major, "and potential rate hikes in the second half of next year.

"Both of those are potentially negative factors for Gold Investment."

In the US on Thursday, "A tidal wave of commercial-loan failures" threatens more than 3,000 small US banks announced the Congressional Oversight Panel, while new data from RealtyTrac showed a 15% year-on-year rise in US home foreclosures.

"If history repeats itself," RealtyTrac's CEO James Saccacio is quoted by Tech Ticker, "we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan-modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works."

The gold held in trust for New York's SDPR Gold ETF remained unchanged Thursday at 1106 tonnes.

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