PHYSICAL GOLD BULLION prices rose 1.2% in Asian and early London trade on Monday, reaching a four-week high on what analysts could only call "investment fund buying" in the absence of specific news or financial events.

Nearing the US open above $912 per ounce, Gold rose as Far Eastern equity markets ended the day 0.5% higher on average.

US Treasury bonds also ticked higher, pushing open-market interest rates down as crude oil slipped $2 from last Friday's new record highs near $128 per barrel.

The US Dollar dropped to its lowest level so far in May versus the Euro.

"Gold continues to attract investors because it is a universally accepted currency with Zero Counter-Party Risk ," writes K.K.Foong, a senior research fellow at the Malaysian Institute of Economic Research in The Star today.

"Moreover, potential official reserves diversification [by Asian central banks] and jewelry consumption by Chinese and Indian consumers may account for rising gold demand. Finally, rising costs of gold production may restrict supply and thereby, generating upward pressure on the Gold Price ."

So far in this decade's bull market in gold, notes David Galland of Casey Research, gold miners have found only one large " Elephant Gold Deposit ".

That means the big mining companies cannot replace the below-ground gold reserves they're digging up, hampering their stock price and capping long-term supplies. ( Read more about Gold's Missing Elephant Finds here... )

On the demand-side, meantime, "[Gold] is still a very good hedge against inflation," says Ben Barber – a broker at Bell Commodities in Melbourne , Australia . He told to Bloomberg this morning that the move above $900 per ounce "may sort of signal that [investors] are seeing gold as cheap now."

The newswire's latest weekly survey of thirty-two gold-market professionals worldwide saw 17 investors, traders and analysts advise Buying Gold today. Only three advise selling, with 12 remaining neutral.

Friday's $20 gain in the Gold Price – the fastest jump in six weeks – came after a new survey pointed to the worst economic confidence amongst US households since 1980.

Inflation in the cost of living was reported last week at 3.9% – almost twice the current level of US interest rates and a serious challenge to the Federal Reserve's "loose money" policies.

Tomorrow brings Producer Price inflation numbers from US manufacturers, with housing sales and price data due to follow on Thursday and Friday.

Wednesday will see both the US Fed and the Bank of England release minutes from their latest interest-rate meetings.

"Upward pressure on global inflation expectations...should support near-term investment demand for precious metals," writes Manqoba Madinane for Standard Bank in Johannesburg today. "[But] it is worth noting that despite higher oil prices, investor sentiment in the precious metals markets remains cautious."

This caution is confirmed by the latest gold futures data from the US Commodity Futures Trading Commission (CFTC), released late on Friday.

Creeping up to a near two-month high in the week ending last Tuesday, "open interest" in gold futures & options remained fully one-fourth smaller than the all-time record total set in mid-January.

But the balance of bullish and bearish bets continued to reset from this spring's extreme readings, reaching a level last seen in Sept. '07 – just ahead of the Gold Price gaining 23% inside 10 weeks and adding 55% by mid-March this year.

The so-called "smart money" of commercial traders grew their bullish bets by more than 4%, reducing the net balance of their always-bearish position to its lowest level in eight months.

Speculative gold traders, in contrast, grew their short positions by more than one-fifth last week. That cut the net bullishness of what's often called the "dumb money" to its smallest level since the second week of Sept.

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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