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Also, stronger regulation of financial institutions may be necessary, Bullard said during the question period after his speech. The New York Fed is assigning examiners at investment banks now that the institutions may borrow from the central bank, he said. While the Fed has been focused on inflation measures that exclude food and energy, the steady rise in prices for those products may require a focus on broader measures, Bullard said.

The rise in inflation ``since 2004 has been due, in large part, to the rapid increase in energy and other commodity prices,'' Bullard said. ``Still, one would expect that policy can be designed to deliver actual inflation rates near target over periods as long as four or five years.'' New York Fed President Timothy Geithner said June 9 that a ``very large sustained rise'' in prices will prompt central banks around the world to pursue ``tighter monetary policy.''

Bullard gave his most detailed economic outlook yet. The U.S. economy has grown no more than 1 percent during the past two quarters. Growth may accelerate to 1 percent to 2 percent in the second half, ``maybe better,'' and return to ``trend'' growth of 2.5 percent to 3 percent in 2009, he said.

Keep an eye out for the dollar at or near 74 on the index, watch for further profit-taking in crude oil and most importantly, remain on alert for a gauge of how substantive the support above 850 proves to be and whether any more robust bargain hunting emerges at current levels. Observers remain apprehensive about the paltry additions to the gold ETFs that have been recorded since the massive 85tonne (about 10% of balances) outflow in April. The gold outlook report from HSBC characterizes the situation as follows:

"While no published data are available, we believe hedge funds have been especially active in the ETF space for several months. That would explain the rapid increase in ETF redemptions recently. The combined WGC-sponsored ETFs plus Barcalys iShares, which comprise the bulk of ETF gold holdings globally, reached a peak of combined offtake of cicra 890 tonnes of gold bullion on 13 March of this year. In just six weeks, the figure dropped to 805 tonnes as of 30 April.

Such redemptions in the heretofore firm ETFs, if they signal a qualitative change in investor sentiment, might imply further price weakness. Put into perspective, the level of redemptions in the ETF for that period, is the equivalent of nearly 40% of annual South African output. If redemptions of that magnitude continue, not only could they call into question the notion that ETFs represent near-permanent bullion offtake, but further liquidation could weigh heavily on prices. That said, it is still our view that the bulk of gold ETF investors are likely to hold gold over the long term."

Let's hope that opinion proves to be correct.

Happy Trading.