After a brief dip to $928, gold started to build on Thursday's gains once again over the night as the dollar touched a new all-time low vis-a-vis the euro and sank to 71.50 on the index.

Crude oil was aiming past $111.50 and was seen fanning the flames of inflation. Europe's inflation rate touched 2.9% -- a number that presents a challenge to the ECB as it ties to keep a slipping economy on the boil, while fighting price rise simultaneously.

Bets are still favouring a no-action/plenty of talk stance by Trichet on Friday. However, no such attitude from London. The Bank of England as it took a page from the US playbook on Friday morning and cut its key rate to 5%, trying to hold back a replay of the current American situation.

Alas, the US strategy appears to have been rather ineffective in reviving borrowing as lenders are still clenching their fists. Like we said, better bring plenty of coffee to the G-7 get-together...

New York spot gold started the Thursday session with a small $0.60 gain, at $934.60 after having bounced off resistance at $the $940 area. Possible tests of $945/$955 could result over the next two days if the tea leaves in the economic data line up against the US dollar again.

Participants also await words by Bernanke later in the day, but for the moment the dollar/oil duo are driving the action. Silver gained 4 cents to $18.21, while platinum rose $10 to $2036 per ounce.

Our friends at Standard Bank in South Africa inform us that: "Eskom, the power utility, has secured a five-year deal to import 250MW in hydro-electric power from its neighbour Mozambique in which 100MW was rolled out last week Friday. Further negotiations are being held with Zimbabwean authorities, with the possibility of a further 500MW being imported. However, the current political uncertainty in Zimbabwe presents a risk to this."

As London-based consultancy and research group GFMS presented its annual analysis of the preceding year on the gold market yesterday, a number of issues surfaced. Among them, trends that we have alluded to in earlier reports and which we also observed in the recent CPM 2007 Yearbook. Mining Weekly relays the story:

"Presenting the findings of the group's 'Gold Survey 2008', [GFMS analyst] Neil Meader said that the price of gold would likely reach a peak, perhaps around $1,100 per ounce, either in the last quarter of this year or in the first half of 2009.

However, he pointed out that the subsequent correction, which GFMS expects will take the price to levels around $600 per ounce in the longer term, represented a shift from previous forecasts.

"I think that's important to bear in mind... previously, in all our forecasts we were only talking about the push being one way - higher - but now I think it's very possible to start seeing the endgame," he commented.

"I think we would say... we've got another 12 months of strong prices, and after that we would expect to see the market turn. It could be 18 months," he added.

"Gold prices were pushed skywards in the fourth quarter of 2007 and the first few months of this year, largely by investment demand, as a weakening dollar, the US credit crisis, inflation concerns and geopolitical tensions and uncertainty raised the metal's attractiveness as a safe haven, or wealth-preservation investment," he said.

On the other side of the demand coin, higher metals prices do, however, lead inevitably to a slowdown in demand for gold jewellery. While GFMS estimates that global jewellery fabrication rose 5% last year, growth was entirely in the first half, before the price surge, with fourth quarter demand dropping by over 20% year-on-year.

Further, looking ahead, Meader expects a 'substantial drop' in fabrication demand, as both manufacturers and retailers contend with high and volatile prices.

"In 2007, the gap between mine production and jewellery fabrication was only around 70 or 80 tons, but now that we have moved into 2008, that gap is going to open up to around 400 or possibly 500 tons," he said.

"So there's an awful lot of physical metal there that investors have to be willing to fund," he concluded.

This market imbalance would be unsustainable in the medium to long term, "and in the light of that, we are expecting at some point that prices will fall, and fall quite heavily", Meader said.

Underscoring Meader's observations was Friday morning's news from Reuters:

India's gold imports in the year to March 2008 fell 23.4 percent from the year before to 592 tonnes as international prices soared, a top industry official told Reuters in an interview on Thursday."

The President of the Bombay Bullion Association, Suresh Hundia told Reuters that the surge in prices has prompted people to sell their old gold jewellery to cash in on profits.

"Recycling has increased by 50 percent to take advantage of the price rise," Hundia said.

The country recycles about 200 tonnes of gold every year. He expected demand to pick up "only if gold prices fell to $750 to $850 an ounce."

Hundia also reported: "In the first three months of 2008, India did not import a single kilogram of silver, because of high prices."

Banks had about 580 tonnes of silver ordered by Indian traders lying with them for six months, but deliveries were not taken as prices of local scrap silver were cheaper. He said efforts were on to re-export the unsold silver stocks." So much for that mythical "silver squeeze" eh?

Do not ignore the signals coming from the historically important consumers of precious metals. Investment levels have been wonderful and have created a sparkling bull market.

However, as the forensic experts of the market keep observing, investment demand needs to stay ahead of the curve and fully offset slumping fabrication demand and surging scrap supplies.

Watch oil, listen to Trichet, Bernanke, and follow the dollar.

Jon Nadler is senior analyst, Kitco Bullion Dealers Montreal.