Gold

Gold was up $20 to $898.40 on Friday and silver was up 28 cents to $16.90. Gold started the week with the rally continuing in Asia and has risen in early trading in Europe to over $910 per ounce.

Oil has weakened slightly but the dollar has also weakened slightly and this likely contributed to gold’s rally this morning.

Inflation hedging and safe haven buying is reemerging on both the surging oil price, inflationary pressures and with much of the economic data being very negative last week, especially the appalling consumer sentiment numbers which showed consumer confidence falling to their lowest levels since 1980, 28 years ago.

Today’s Data and Influences

This week is a quite week on the U.S. indicators front, with little to add to the picture of a struggling economy. The midweek release of the FOMC minutes will gain more attention than usual, in view of the Fed’s recent policy decisions.

Economic indicators deteriorated last week, as signals from retail sales, manufacturing activity, and consumer confidence were generally negative. In addition, oil prices bounced back up to record levels.

Core producer prices are expected to have accelerated slightly in response to pipeline pressures from intermediate and crude goods, while existing home sales likely declined again. Other numbers to watch include existing home sales and PPI reports for April, with the latter expected to point to upside inflation risks.

Dollar to Keep Falling

The dollar’s recent bounce is likely to have been another short term bounce in its ongoing bear market. Despite all the positive “talking up” of the dollar in recent days, its recovery has been meager at best. In the last 30 days it did rise some 3% versus the euro however it was 4.8% weaker than the Swiss franc and 2.2% weaker than the Japanese yen during the same period. It was also down against the Australian dollar and many of the Asian currencies during the month, showing that the much touted recovery was primarily against the euro and is tentative at best.

While the dollar may continue to strengthen against the euro in the short term it remains in a bear market. In the same way that many analysts were wrong when they said that 1.30 would be the high in the euro/dollar rate so they will be wrong with the call that 1.60 is the highest the euro will rise against the dollar. Indeed, it is not beyond the realms of possibility that the dollar will fall to 2:1 to the euro as it did with sterling in recent years – unless there is a significant steep recession in the Eurozone.

The same people who have called the end of the dollar bear market will be proved wrong again. The dollar remains a currency facing substantial headwinds in the form of the huge annual trade, current and now increasing budget deficits and burgeoning stagflation. Until these deficits are materially corrected and the threat that is stagflation dissipates, gold will remain in a bull market.

Trichet Warns on Credit Crisis and Inflation

Fears of a sustained downturn in world economies was back on the agenda today after Jean Claude Trichet, the president of the European Central Bank, gave warning that the worst if the credit crunch has not passed and was still heading for a "very significant market correction". Speaking on BBC Radio 4, Trichet said containing inflation was the best way to protect prosperity and employment. "Price stability and credibility in price stability in the medium term is the best way to have a high level of sustainable (economic) growth and sustainable job creation," he said. Trichet said inflationary pressures were being added to by an accumulation of oil price rises and food price rises, adding: "These are demanding times, challenging times."

Silver

Silver is trading at $17.15/17.20 per ounce at 1200 GMT.

PGMs

Platinum is trading at $2148/2158 per ounce (1200 GMT).
Palladium is trading at $448/453 per ounce (1200 GMT).