Gold

Gold closed at $869.50 in New York and was down $10.50; silver closed at $16.48 down 29 cents. Gold rallied initially in Asia but has subsequently given up those gains and has fallen in Asia overnight and in early European trading this morning.

More of the same in the gold market today with gold taking its lead from oil which is down (1%) and the dollar which is up this morning (0.8% against the euro and 0.15% against sterling). Further jawboning and verbal support for the dollar will be expressed at the G7 meeting at the weekend and this could put gold under pressure (today).

Gold's sell off yesterday was again counterintuitive considering the action in other markets, particularly the commodity markets some of which surged to new record highs again. July gasoline made another all-time high at $3.5350 per gallon, up 6.92 cents as did corn, soybeans, natural gas and the benchmark CRB Commodities Index rose to another all time record high.

This means further serious inflationary pressures in the coming weeks and is very bullish for gold as it was in the stagflationary 1970s.

Gold has been consolidating in a range between $850 and $950 for nearly 3 months (since March 20th) which is healthy and to be expected. Especially given the extent of the move up in price prior to that. From mid August 2007, gold rallied from below $650 to over $1030 in just 7 months or 58% in just 7 months. Such a return is unsustainable in any market and a sharp correction and consolidation was to be expected.

The 200 day moving average has now moved up to $857 which is support. Physical buying is very strong below $870 and seems to be the floor under the price.

http://quotes.ino.com/chart/?s=FOREX_XAUUSDO&v=d12&w=1&t=l&a=200

Should we experience price movements as last year, gold could bottom in August and then rally into year end and early 2009.

If gold replicated this performance (which is not beyond the bounds of possibility given the extremely strong fundamentals) then it could rally from $850 to over $1,300 per ounce in a matter of months. We believe it will reaching over $1,200 per ounce in the coming months prior to a further correction and consolidation.

Today's Data and Influences

Given the current focus on inflation, markets are now starting to price in rate hikes of up to a full percent in the U.S. before the end of the year. Price pressures will remain the focus of attention today with the U.S. CPI report for May due for release this afternoon. The headline CPI rate is forecast to rise to 4.0%, underpinning pricing fears at the Fed.

Also this weekend sees the G-8 Meeting, where the group is widely expected to make comments in support of a stronger dollar. The two events could very well be the trigger that causes EUR/USD to break out of its current trading range but moves higher against the euro could also be limited as the ECB's continues its own inflation bias.

Silver

Silver is trading at $16.37/16.41 per ounce (1230 GMT).

PGMs

Platinum is trading at $2021/2031 per ounce (1230GMT).
Palladium is trading at $434/449 per ounce (1230 GMT).