SPOT GOLD PRICES turned higher from this week's 3.3% drop to $897.25 per ounce early Wednesday as European equity markets slipped on news that Eurozone industrial output fell in December.

With Treasury bond prices ticking higher – and London 's FTSE stock index losing 1% for the day – US crude oil futures pushed higher above $92 per barrel.

Copper prices fell at the London Metal Exchange to cap a five-day winning run, while wheat fell back from its sharpest two-day gains since 2003.

Soybean and palm oil hit new all-time highs at the Dalian exchange in China .

"Subject to developments in the oil price and the US Dollar," says Wolfgang Wrzesniok-Rossbach for Heraeus, the German refining group based in Hanau , "we do not rule out [the possibility] that gold has seen its highs for the time being.

"The failed attempt on Monday to reach the most recent peak again could disenchant investors and initially lead to further profit-taking."

But with G7 politicians urging gold sales by the International Monetary Fund (IMF) – and a leftist candidate for the Economic Ministry in Hesse , Germany , now calling for the Bundesbank to follow – "private investors continue to remain on the other side," Wrzesniok-Rossbach adds.

"Demand for investment-gold remained robust this week [despite] more and more profit-taking from private investors happy to book gains at these levels."

Gold futures traded today at the Tocom in Tokyo dropped 2.6% today to equal $902.85 per ounce for Dec. '08 delivery. Recording an AM Fix in London of $905.75 per ounce – some 1.6% below Tuesday morning's Fix – physical Gold also lost 2.4% against the Pound Sterling, despite news that growth in UK earnings has slowed below inflation.

Today brings US retail sales figures for Jan. – expected to show a 0.2% decline – plus the latest US mortgage application data.

The default rate on all existing US mortgages has now reached 7.3%, says the Mortgage Bankers Association, the highest level on record. President Bush will this afternoon sign a $168 billion tax-rebate bill, hoping to stop the current slowdown from becoming a genuine economic slump.

"It certainly will be possible for the Gold Price to spike still higher," reckons David Moore at the Commonwealth Bank of Australia in Sydney . "I think it's premature to say that we've seen the peak. There's still some investor interest in gold."

The latest data on Gold Market futures & options show that, overall, bullish betting shrank 1.3% in the week-ending Feb. 5th. The world's gold-backed trust funds meantime grew by 0.3% – and that makes the volume of metal represented by the ETFs greater than the net long US derivatives position, says Mitsui today.

The switch indicates "how important these investment vehicles are in the sustainability of the gold run," the metals dealer adds. ( But wouldn't you rather actually own real gold instead? Get the facts in this Free Gold Report here... )

Meantime in the market for real physical Gold Bullion today, the early drop below $900 per ounce encouraged inventory buying from Asian jewelers, reports Reuters.

India 's gold imports slumped by 95% in January from the same month in 2007, the Bombay Bullion Association said Tuesday. But while "gold buyers may take long time to adjust to the high and volatile prices," says Rajiv Nair, vice president of Vision Commodities in Dubai , "by the second half of 2008, demand will pick up."

In the fast-growing Middle East , meantime, "jewelry demand is likely to remain stable, but we are now seeing a surge in investment demand due to growing apprehension in the global financial markets," said Ian MacDonald, head of gold and precious metals at the state-owned Dubai Multi Commodities Centre, to the Kuwait Times overnight.

Inflation in Saudi Arabia , the largest economy in the Middle East , rose to 4.1% last year from 2.2% in 2006, driven by a 7% rise in food prices and an 8% increase in housing costs.

Gold demand across the member states of the Gulf Cooperation Council (GCC) rose by one-fifth in 2007 to reach 260 tonnes according to the World Gold Council's local office.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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