GOLD PRICES extended last week's 13% gain early Monday, nearing Wednesday's six-week high of $892 per ounce as the US Dollar tumbled on the foreign exchanges and world stock markets retreated from Friday's "big bail out" surge.

Pointing to the US Treasury's plans for a $700 billion "resolution trust" for toxic mortgage-backed securities, "the US Dollar's response last week was further depreciation," notes Walter de Wet at Standard Bank.

"That provided support to commodities in general and precious metals specifically."

Commodity prices continued to rise sharply in London on Monday, while government bond prices fell back after last week's record jump.

Crude oil leapt to breach $106 per barrel. Three-month US Treasury bond yields rose towards 1.00% after reaching an all-time record low of 0.02% last Tuesday.

European government bonds also dropped, pushing 6-month yields back above 4.10% in London and Frankfurt as the FTSE and Dax slipped lower.

Both the Euro and Pound Sterling continued their 5% bounce vs. the Dollar, meantime, rising above $1.45 and $1.84 respectively.

"Gold appears to be entering a powerful new phase of investment demand tied to safe-haven and monetization themes," wrote John Hill, highly-respected metals analyst at Citigroup, late last week.

"Frankly, we're surprised that Gold is not already at $2,000 per ounce [because it was always clear] an overwhelmingly vast and complex pool of nested financial derivatives would ultimately result in cascading defaults and ruin for major portions of the banking system."

Overnight in New York , the last two independent US investment banks - Goldman Sachs and Morgan Stanley - both applied for regulation by the Federal Reserve as bank holding companies.

Now eligible to take deposits from cash savers, they will also be able to request short-term financing loans from the US central bank.

"Things are very bad," says Jeffrey Christian, managing director of the CPM research group in New York . "We are not out of the woods.

"I think there's a lot more to come, and a lot more will come that is going to keep gold in the hearts and minds of investors for at least another six or eight months."

After last Wednesday's huge leap in the Gold Price - sparked by a massive short-covering in the options market, according to trading-room gossip - the latest US futures & options data shows gold-industry players tip-toeing back from the extreme "bullish" position they'd taken in early Sept.

Even so, roughly two-in-five contracts held by the "Commercial Traders" of miners, refineries, bullion banks and large jewelry fabricators are betting on a rise in Gold Prices.

Speculative traders, in contrast, continued to hold their smallest bullish position in almost two years as a proportion of their total contracts.

Overall, total interest in gold futures & options - where financing costs have leapt in line with interbank money market rates - grew by 3%. Gold exchange-traded funds (Gold ETFs), in contrast, saw volume "explode higher" last week as Gene Arensberg notes at Resource Investor, reaching an all-time record of 186 million shares.

"From the very large amount of metal added over this past week on record volume, we can conclude that buying pressure very strongly overwhelmed selling pressure."

The major ETF providers "fear contagion", however, according to the Financial Times , after the market in certain exchange-traded notes - backed by failed US insurance giant AIG - ground to a halt last week.

"Exchange traded fund providers are scrambling to draw a line between themselves and other exchange traded products, amid fears that the counterparty risk in certain exchange traded notes and commodities is too great for investor comfort," the paper reports.

Rory Tobin, the head of Barclays Global Investors iShares Europe division - a major issuer and marketer of exchange-traded funds - acknowledged that "recent market events have highlighted the fact that investors are looking for full transparency when it comes to understanding what is in their ETF, ETC or ETN."

Financing costs for European investors using spread-bets, meantime, have surged from this time last week, with active investors reporting a gap between the spread-betting prices to buy and sell gold reaching $50 at one point on Friday.

Betting on "Rolling Spot" gold prices now costs 0.15% per day with one leading spread-betting firm.

"You have this tremendous demand for gold and silver in physical form around the world," says Christian for the CPM Group.

"People are paying record high premiums for gold and silver; in India there are reports of tightness in an investment for silver and gold by North America and Europe .

"So I think what you are seeing [is] the paper market can swamp the physical market for a time, but the physical market ultimately trumps the paper market.

"We are having troubles coming up with scenarios in which the Gold Price falls in the next several quarters significantly, and in which the gold bull market ends."