Gold, silver reverse losses as dollar drops

The “clues” are mostly all out there, but speculative-induced “ignorance” is still offering financial “bliss” for some. When was the last time one has read that “X [insert your favorite commodity here] rose this morning despite poor demand and ample supplies as the US dollar was the prime price-moving agent” in a financial publication? How about the entire period since last August?

Spot gold dealings opened their final session for this week with a 50-cent drop after they had retained smallish gains in prior hours on account of the aforementioned weaker greenback. Book-squaring activities (or, as our friend, RBC’s George Gero likes to say: “Get me out before the weekend!”) could play a role in upcoming intra-day volatility in the gold and silver pits; something that the trading desks we surveyed this morning fully expect for later in the day.

The spot bid price for the yellow metal was quoted at $1,506.40 per ounce as players regrouped in anticipation of the release of core US inflation data this morning. That little figure held the potential for larger-scale market action later in the day, and not just for gold. Food and fuel costs were anticipated to have added substantially to expenses for US consumer this spring, albeit core inflation levels have not yet unnerved the Fed.

As it turns, out, the inflation figure was not so “little” after all, albeit it came in in-line with economists’ former projections and a good portion of them might still label it as “tame.” The US CPI showed a 0.4% gain in April, while the so-called “core” rate climbed by 0.2% on the month. US consumer prices have experienced a 3.2% gain on an unadjusted basis over the past year, and that makes for the largest such increase since late 2008. This level of price gains might just put the Fed “on notice” that it might not only achieve its “target” for inflation sooner than expected, but that it might have to do some “tweaking” in certain areas (read: monetary policy) in order to avert having to take more aggressive steps in a hurry, down the road.

Inflation, as we have recently been reading, is causing problems and central bank actions of a concrete nature (not just jawboning) across the world, from India to Europe, and over to China. The European Commission this morning raised its inflation forecast to an average of 2.6% for the year while projecting that it might slow to the 1.8% level in 2012. The ECB took the first step toward exiting accommodative monetary policy last month, with a 25 basis-point interest rate hike.

The pivot point for the global interest rate environment appears to be coming into sharper definition as the summer approaches, and it is doing so in concert, in various part of the globe. The only remaining question is not whether or not the Fed will join its colleagues in other countries and begin to enact similar, inflation-averting policies, but when it will do so. The ticking of that countdown clock is the central theme for commodities’ players to concentrate upon from here forward. This is the core issue to take into account.

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