Speculation + Manipulation = Intervention?

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Good Morning,

Gold prices turned lower overnight as the US dollar took another forward step on the index, bolstered by inflation combat comments from K.C. Fed Pres. Thomas Hoenig and by credit crisis related observations from the Treasury's Henry Paulson. The greenback is approaching 60-day highs on the index and tomorrow's ECB meeting is expected to yield no change in interest rates. Oil prices remained just under $122 but did not manage to stimulate higher gold values at this time.

India ushered in the festival of Akshaya Tritiya and hopes were high that the next day or two will prove that locals are more interested in gold at current levels than they have been during Q1 of this year. The very latest from Reuters indicates that sales are off to only a moderate start (though we will have to wait a day for a full tally): "There is not much buying in the wholesale segment, but the retail side is good," said a dealer in a large private bank in Mumbai."

New York spot bullion opened at $869 per ounce, showing a $6.60 loss while participants looked forward to the release of Q1 productivity, mortgage applications, and consumer comfort figures this morning. Given a few of the most recent background developments (esp. the dollar) the tilt in the market once again points to a retest of the $845 area as the more likely occurrence. Silver fell 19 cents to $16.65 while platinum dropped $15 to $1945 and palladium shed $11 to $421 per ounce.

What's behind the latest show of resilience by the dollar? Forbes indicates that:

"Kansas City Fed President Thomas Hoenig said late on Tuesday that [U.S. interest] rates will need to be raised in a timely way as the central bank grapples with a serious threat of inflation, prodding the euro towards a five-week low versus the dollar. Analysts said that Hoenig's statement, along with a string of surprisingly strong U.S. economic data, was fuelling the view that U.S. rates may have bottomed out at 2 percent, following a series of aggressive rate cuts over the past few months.

"Though he's not a voting member, Hoenig's comments suggest that the Fed might need to tighten rates because of inflation pressures," said Adam Myers, market strategist at Credit Suisse, adding that this was supporting the dollar. Also helping the dollar were comments from U.S. Treasury Secretary Henry Paulson, who told the Wall Street Journal in an interview that "the worst is likely to be behind us" from the crisis spawned by surging defaults on U.S. home mortgages."

Other background factors making their way onto the front of the stage these days are giving rise to worries of a different kind. The complex but clearly distorted situation in oil and agriculturals has analysts and policy makers (not to mention election candidates) studying the current reality and coming up with explanations and/or solutions. The implications of what they say, in many cases, point to some possible type of active intervention in one or more of these markets. It could be only a question of time. Here is a sampling of recent findings as relayed by Marketwatch and UPI Asia:

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"The Federal Reserve's seven interest rate cuts in as many months, which helped protect the U.S. economy from the full effects of the housing crisis and the resulting credit crunch, also contributed to the spike in raw material costs that has been felt across the globe, experts said. In short, the integration of world markets means that subprime mortgage fraud in Las Vegas is linked to food riots in emerging economies.

But the decision by the world's most powerful central bank to flood financial markets with liquidity has helped to fuel speculation that has exacerbated the problem, experts said. In essence, they [the Fed] viewed the commodity-price spike like water damage. It wasn't welcome, but it wouldn't prompt them to turn off the hose until the