Spot gold prices leapt more than $7 to their highest level in nearly 3 weeks above $662 per ounce in early New York trade on Monday.

Tocom gold futures for April '08 had earlier risen 0.9% against the Japanese Yen in Tokyo to end the session equal to $655 per ounce, while Japan's Nikkei 225 stock-market index rose 0.7% to its highest close in 7 years.

Both Japanese gold and equity buyers were encouraged by a fresh drop in the Yen, down to a fresh record low versus the Euro and a 15-year low against Sterling. The US Dollar held steady, meantime, holding around $2.0150 per Pound and holding at better than $1.3630 per Euro.

That put the Sterling price of gold for British investors wanting to buy gold now up at £328.11 by the Afternoon Fix in London. For French, Italian and German investors, gold priced in Euros was fixed at €485.39 per ounce.

Looking ahead, the most recent Bloomberg survey of gold market professionals says that 16 out of 31 experts interviewed late last week advised buying gold. Eleven said to sell, and the remaining four were neutral.

"For a second consecutive session on Friday," notes Standard Bank in Johannesburg today, "gold has found support in front of $645. This should continue to provide support in the interim and further bolstered by the 200-day moving average just below it. The metal could run into congestion beneath the $660 level with stronger resistance at $665 capping potential rallies."

Monday morning in Europe also set the pace of a quiet week for economic data. Germany's industrial output in June matched expectations at 1.9% growth year-on-year. Producer price inflation in the United Kingdom slipped below forecast at 2.1% from a year earlier, but consumer price inflation looks set to rise – despite the Bank of England taking UK interest rates to their highest level in six years.

Today Premier Foods Plc said it will raise the price of bread "in the coming weeks" to beat higher wheat prices. The Financial Times warns that the recent summer flooding could lead to a 50,000-tonne shortfall in the pea harvest, with meat prices also rising as supplies of animal feed are hit.

But following last week's surprise rise in gold prices after the US non-farm payrolls data, currency and bullion traders will now be watching for the US retail sales, business inventories and sentiment reports due on Friday.

“Due to the increased volatility in Dollar movements and uncertainty on where the US economy is heading," reckons Dr Walter de Wet, senior commodities analyst at Standard Bank, "investors are less eager to buy or sell gold every time the Dollar moves."

"Coupled with higher US bond yields," he told MiningMX.com, "this means investors are more likely to shift out of gold and into safer alternatives like US government debt."

David Hall, global metals and mining analyst at Macquarie in Jo'burg, agrees. "The rising global risk that we see reflected in [higher] US bond yields takes people out of gold as investors tend to prefer safer investments like US Treasuries during times of economic uncertainty."

After spiking to a five-year high of 5.32% in mid-June, however, the 10-year US Treasury yield closed last week at 5.19% – up 15 points for the week as bond prices slid once again.

In short, the current yield on US Treasury bonds is failing to attract fresh investment into fixed income securities. To find out why this matters to gold prices – and what the future may hold for the trade-off between gold bullion and US Treasuries – click here now...