Physical gold bullion prices rose 0.6% against both Sterling and the Dollar during Monday's Asian session, opening London above $675 per ounce.

Gold then pulled back as the US session drew near however, and dropped alongside crude oil and copper prices to close the London session at $668.50 per ounce.

That put the gold price in Pounds down 0.7% for the day at £337.60 per ounce. Against the Euro gold prices slipped further, down 1.1% for the day to €493.50 after failing to reach the key €500 level overnight.

The single currency rose strongly on the foreign exchange markets this morning as data showed industrial production in the Eurozone rising 3.7% year-on-year in March, ahead of consensus forecasts.

Germany and Denmark grew strongly, while industrial production in Greece and France barely changed year-on-year. (Could the Eurozone's two-tier economy tear the Euro apart? Find out more here...)

UK data, meantime, showed producer input prices falling 0.3% from April last year, pushed lower by the recent quarter-century highs in the Pound Sterling on the world's currency markets.

Currency traders sold the Pound nearly half-a-cent lower against the Dollar on the producer price news – even though producer output prices, a closer measure of domestic inflation, rose 2.5% over the same period.

In short, a quarter-century high in the Pound has failed to stem a two-decade high in UK inflation – and just the US Fed, the Bank of England faces an inflationary credit bubble it daren't burst but cannot ignore. (Read more about Sterling today here...)

In Tokyo the Yen price of gold closed Monday just 2% off its starting level of last week – the smallest gap for gold to close versus any of the five major world currencies.

And at the Tocom futures exchange, Tokyo gold for delivery in April '08 clipped a four-day losing run to gain 0.8%, closing at the equivalent of $680 per ounce.

Gold has proven a solid store of value for Japanese investors amid the collapse in Yen interest rates and the parallel collapse in the Yen's global purchasing power.

"Tokyo looks to have set a tone in Asia today," reckons Kaname Gokon, deputy general manager of research at Okato Shoji Co.

After dumping $20 per ounce between Monday and Friday last week, the gold market clearly remains above the uptrend it began in October last year.

Compared with the bull market in gold starting in 2001, last week's sudden drop doesn't even register as a blip.

Yet "speculators and long-term investors alike once again lost their faith in gold last week," as Wolfgang Wrzesniok reports for Heraeus, the German metals refinery.

"The gold price development in the coming days will continue to depend again to a large extend on the moves of the Dollar and the oil price. As it looks now, there won’t be much support coming from the physical side as throughout [the last] week there has been a good inflow of scrap material and only a very slowly rising demand by the jewelry sector."

The Post in Pakistan also reports from Lahore that gold jewelry demand has been slow, with local dealers having to cut their asking prices to stoke business.

"The big dealers and investors were not taking interest to take fresh positions in buying gold," The Post quotes one dealer, "as they already had taken heavy positions of the precious metal."

But while physical gold jewelry demand from the traditionally buoyant Asian markets remains flat in the face of gold's 5.5% advance so far in 2007, strong investment demand looks set to return – and quickly.

Fourteen out of 31 gold professionals surveyed worldwide by Bloomberg at the weekend make gold a "buy" at current prices. Eight were bearish and nine were neutral.

At Mitsui in Sydney, Brandon Lloyd notes that "it appears fashionable at the moment to sell the gold rally above $670 and buy the dip back toward the major trend line support area at $660-$665.

"This suggests we will continue to see gold consolidate between this range before it gets positioned to test the psychological $700 level again."

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