Gold prices continued on the firm side overnight, supported primarily by a 0.13 point loss in the US dollar on the trade-weighted index (now at 79.56).Quarter-end position squaring was still in the cards for the remainder of the day, but the metal looked set to close out the period with a third quarterly gain - driven mostly by its May spec fund-flavoured surge. Gold is still off by more than 4% on the month and is only showing a 1.59 percent year-on-year gain, but the echoes of the May rally carry over strongly. The greenback sank on the heels of rising optimism about the prospects for the US recovery. Recall that it was the US that went into this awful tunnel first, and it did so headlong. All things being equal, one would logically expect that it will also be the one to emerge from this credit crisis cave, first.

 Over in Europe, the UK economy is showing the largest contraction since 1958, while the EU zone recorded its first annual consumer price decline since records were first tallied in 1996. The surprise is that prices fell and brought about the lowest level of inflation since 1953, despite higher energy costs of late. German inflation is at a big round zero level. Spain and Ireland are racing towards the same nil value marker. Signs (those green 'things') of recovery notwithstanding, the dangers of slipping into a deflationary feedback loop are still there, and in more than just one place.

New York spot gold dealings started with a $2.60 gain this morning, quoted at $939.90 bid. Marginal gains in crude oil lent a modicum of support, but the main driver remained the dollar. Equities continue on the confused side, although Japan did show a decent gain overnight. The week still contains important data and albeit it is being shortened by the Friday start of the long weekend, it is keeping specs on the alert early on. Employment and its state of health is dead-center on the market focus radar now.

Silver rose 7 cents to open at $13.91, while platinum gained $8 to start the day at $1191.00 an ounce. Palladium climbed $2 to $250 per ounce. No further news from the auto sector for now. Copper however, is set to close out the mid-year with a stunning performance - one that would be expected more from the precious metals niche than from the 'lowly' industrial metal. Cu is showing a 68% gain on the year, its best half-year in more than 22, and...is 'fully-priced' based on fundamentals, according to GFMS in London, Thank you, spec funds.

Speaking of spec, behold the efforts to get something going, gold-wise, over in India.Bloomberg reports that the country'sbiggest bourse fortrading physical gold, will offer contracts in smalldenominations, aimed at households in the world's largestconsumer of the precious metal. The exchange will offercontracts in sizes from 8 grams to 1 kilogram starting today,Anjani Sinha, managing director, said in an interview today. Presently, the bourse only trades imported gold bars in sizes of 100 grams and 1 kilogram, he said.

The Multi Commodity Exchange of India Ltd. and the National Commodity & DerivativesExchange Ltd., India's biggest commodity bourses, only trade gold futures. That forces individuals to buy or sell bullionthrough jewelers and banks in the physical form. Households inIndia, where women are the biggest users of gold, have 25,000tons locked away in family vaults, according to the National Spot Exchange. ``Our main aim is to tap the huge household stock,'' said Sinha in a phone interview. ``There's notransparent, electronic market with a nationwide reach for spot gold'' in India, he said.

We say, be careful what you wish for. Whilst there is no noubt that the overlapping number of Internet-savvy households and bullion owners is probably not a big chunk of that 25,000 tonne pyramid, the mere possibility that suddenly, millions of housewives might click the 'sell' button simulatenously in lieu of making tracks to their local bazaar, should present some concern. That, because on the buying side of this equation, we still see these ladies walking over to the shop to see, touch, and evaluate that piece of gold as opposed to clicking the mouse. Nevertheless, this could be the start of some serious girl power coming to the gold market.

In other news from India, its own Commodity Online informsus that: It seems global metals consultant GFMS is not ready to read the writing on the wall. In a latest report, GFMS said gold prices are likely to touch new highs in the second half of 2009, still sticking to its earlier prediction that gold may again cross $1000 per ounce levels.

However, gold doesn't show thattrend now, which GFMS is refusing to believe. Gold prices have been hovering around $900 plus levels for quite sometime now and several investors have started dumping gold for equity markets and silver. This is because the feeling among other analysts is that gold has peaked and further rise is almost unlikely. However, GFMS is not ready to accept it and said gold prices are likely to touch fresh high in the second half of the current year on the back of investment demand and over-the-counter market, global metals consultant GFMS said in a report.

But analysts felt that equity markets across the globe have shown rising tendency and people may not stick to gold, which has got the safe haven status now. That may not be the case a few months down the line, because, markets are rising fast all over the world. Looking at the second half of 2009, investment demand, and especially its western elements, which includes activity in ETFs, futures and the OTC market, is expected to remain the driving force behind gold price movements, GFMS executive chairman Philip Klapwijk said in the report.

Over-the-counter (OTC) market is decentralised and not listed in any exchange. In this, a participant trades over telephone or through middle men instead of physical trading floor. GFMS predicted that the global investment this year will exceed 1,500 tonnes or about $47 billion, which will accelerate the price to new peak in the second half of 2009.

Given the rising fears over the long-term inflation threat in western na tions, GFMS expected the world investment to see a massive increase this year, particularly from its implied net investment and official coins components. The report pointed out that growth in investment demand has been the main reason for the rally in gold that has taken the precious metal from around $250 in early 2001 to the peak $1,000-level in 2008 and 2009.

Investment demand has been primarily driven by rising interest in gold following weakness in US dollar since 2002. And, rising commodity prices, concerns over the security of bank deposits following the near meltdown of global financial markets and growing concerns at the potential longer term inflationary consequences of unprecedented monetary and fiscal policy easing will also push the demand, it added.

During the 1993-2000 period, world investment in gold averaged 383 tonnes per annum, whereas over 2001-2008 it averaged 707 tonnes each year. Approximate in value terms, this represents a steeper jump from an annual average o f just 4 billion dollar to nearly 12 billion dollar per annum, it pointed out. It said western investment tends to drive prices either higher or lower, while demand in the rest of the world generally tends to support the lower levels.

Finally, a quick look at gold's current technicals, as relayed by GoldEssential.com in its latest survey:

Spot gold has posted a streak of impressive daily gains since our last analysis, having convincingly bounced off the $912.05 an ounce Fibonacci support (61.8 pct retracement of the $864-$989.80 up-move), and as such has shifted bearish short-term expectations to a rather sideways expectations. Nevertheless, daily candlestick studies show some fatigue ahead of decent resistance in the $941.75 (38.2 pct retracement of the prior $864-$989.80 up-move) to $945 an ounce area, and still preceded by $940 an ounce.

Last Friday saw an initial spike above this band, although the failure into the close has fortified the resistance. As such, unless a daily close above the $941.75-$945  area is witnessed, selling pressures of a technical nature could keep gold on the defensive. An 8-month old trend-line, which was mentioned in our last analysis, has been recaptured with price action holding the topside of this trendline for two consecutive days in terms of closing values. A third one would be adding further strength for a successful probe of the previously mentioned resistance area.

On the contrary, a failure to hold to the trend-support could spark renewed weakness, which would walk hand in hand with a failure to overcome the previously mentioned Fibonacci resistance. The uptrend-line is currently located at $939-940  an ounce. Going higher, above the $945 an ounce mark would open for a re-test of $950 and subsequently $955. Above here lies very strong resistance at $960.1  (23.6 pct retracement of the $864 - $989.80 an ounce move), followed by $966.70 and ultimately $986.

Above here would bode well for a retest of the $1,005.40 previous high. When assessing the downside, support starts at $940-$939 an ounce, followed by $933-$930 (including 50 SMA at $931), $927 (100 SMA), $925, $920, $917 (short-term uptrend support) and $912.90 (previous low) - $912.05 (61.8 pct retracement of $864-$989.80 upmove).

Decisively below the 61.8 pct retracement support would likely see $900 fast-approaching, followed by $890, $880, $875 (200 MA) and $864  an ounce (April lows). A failure to hold to the April lows can lead prices lower towards $850, $843 (50 pct retracement of the earlier $680.8-1,005.40 move) and ultimately $830  (which has served as a pivot point several times since August 2008), where we expect very strong support.