Good Morning,

Bullion prices remained within the $860/$880 channel overnight as markets tallied what may turn out to be somewhat a dud insofar as Indian festival demand is concerned. Reports from the country indicate that at least as far as the first day of purchases goes, the demand for gold appears to be perhaps only 50% of what it was last year. Gold was some $200 less costly at the time, and purchases in 2007 and 2006 were fairly robust.

Locals believe they may see weaker prices over the next several months as the dollar is trending higher. Partially offsetting the modest Indian demand news was the report that gold ETF holdings marked a second day of gains in balances following a near 10% decline in same since gold's peak price. For today, the dollar was marking time at 73.65 on the index and oil was trading still near $123 per barrel, showing only a 40 cent loss.

Spot gold trading in New York opened at $874.30 per ounce, up $6.50 on the day as participants awaited initial jobless claims figures and the results of the ECB rate decision following its Athens meeting today. Consensus remains strong on the side of no rate action, combined with words of vigilance on inflation. The euro on the other hand headed towards a two-month low against the greenback as traders see a growing possibility of a stimulus-oriented rate cut later this year, in lieu of an inflation pre-emptive hike. US weekly jobless claims fell by 18,000 but the four-week average of continuing claims rose to a four-year high of 3 million. The dollar headed lower on the index following the news.

Silver rose 5 cents to $16.65 while platinum added $24 to $1985 and palladium gained $2 to $429 per ounce. Although the dollar was threatening to break the 1.53 mark against the euro on the heels of the ECB's decision to stand pat, other markets did not show much of a reaction as yet. Jim Rogers was quoted in Singapore today to have said the he expects a dollar rally as too many remain bearish on the currency at the moment. He also expects the greenback to further erode in its role as the global reserve currency and expect China's yuan to be of growing importance.

We reported yesterday on the price distortions in many a commodity of late. We sounded opinion on the likelihood of market intervention. High oil prices and Western hedge fund speculative activity notwithstanding, the Canadian Economic Press reports this morning that:

The Forwards Markets Commission (FMC), India's commodities market regulator, said in a public service announcement on Thursday that it has suspended domestic futures trading in selected commodities for four months, with immediate effect, in a bid to curb inflation.

The commodities named by the FMC are potatoes, refined soya oil, rubber and gram. Their existing contracts closed at Wednesday’s closing prices, it added. The announcement follows an earlier suspension in futures trading of wheat and rice. Outside of political circles, local market observers have criticized the decision, especially as the government’s own committee, appointed to probe the effect of futures trading on commodities, said it had not found any evidence of prices in the futures market affecting spot prices of commodities.

However, Indian Finance Minister Palaniappan Chidambaram said on Monday that the pressure is to suspend a few more food articles. If rightly or wrongly, people perceive that commodity futures trading is contributing to a speculation driven rise in prices, then in a democracy you will have to heed that voice.

Inflation in India rose to a fresh three-year high of 7.57% for the week ending April 19, making it the fourth successive week that the country’s Wholesale Price Index has stayed above both the 7% mark and the Reserve Bank of India’s revised target of 5.5% for 2008.

Although all eyes remain on oil (including those of central bankers) the gold market will also take cues from price patterns in other commodities in the near-term. Final gold sales figures from India might have an impact as well, but for the moment the metal remains within the range.

Happy Trading.