Good Afternoon,

Gold prices managed a second June foray on the $900 level and on resistance at and above $905 as participants bought the metal on continuing credit-related apprehensions and somewhat declining expectations of imminent rate hikes by the Fed. The highs for the session came during mid-morning and gold touched nearly $909 per ounce, but the gains were later tempered as crude oil staged a nearly $4 decline following news that China will raise fuel prices significantly starting on Friday.

New York spot prices halved their earlier Thursday session advance and were last tracking an $8.00 gain at $902.00 per ounce and players were hoping that the metal would achieve another close above $900 - a level it has not maintained since June 6. Silver was up 11 cents at $17.44 while platinum reversed its Wednesday gains and headed $44 lower to $2039 but palladium gained $4 to $471 per ounce.

Yesterday's posturing by the Bush administration as well as by its chosen successor focused on big talk about offshore oil drilling and the building of 100 nuclear power plants, but offered very little in the way of any immediate relief from soaring prices at the gas pump. On the other hand China took concrete action against record energy prices by...raising them by 18% domestically. The effort is intended to curb demand, and help the environment among other things. We are talking here about the second largest energy user and top polluter in the world. Therefore, anything the country decides to do with regard to energy use is quite significant. In fact, one may also conclude that this latest measure is also aimed at slowing the hitherto surging rate of economic growth and worrisome inflation. It may not be pretty, but it might beat the alternatives. The bottom line is, more and more anti-inflationary measures are popping up in various places around the world. This is one phenomenon that has grabbed widespread attention since most people recall its deleterious effects.

When heavyweights from the world of oil get together in Riyadh for a special meeting this weekend they are sure to have some nice strong coffee ready to help them focus on what they can do to address the current situation. China acts. The US (for now) talks. Can you imagine if the US jumped ahead of the curve and asked motorists to pay from $6 to $8 per gallon of gas or diesel? That would surely speed up the demand destruction that could ultimately lead to an adjustment in the price of oil. Not to mention the acceleration of the quest for alternative sources of energy. In the interim, Iran's sudden willingness to suspend uranium enrichment while negotiations take place with the West regarding the long-standing impasse on the matter also helped ease crude oil values a bit today.

Otherwise, most participants are basically mentally fast-forwarding to Wednesday of next week trying to gauge what the Fed will come up with. Thus far today, the jobless figures' indications of lower levels for both initial as well as continuing claims is not having a marked effect on trading as players are instead striking up water cooler talk about the FBI arrests of two former Bear Stearns fund managers over their alleged role in lighting the fuse of the subprime bomb.

This being an election year and all, politicians have not hesitated to jump into the ring, don their economist hats, and give us their opinions about everything from the subprime debacle to oil prices, and more. Some were seen on various interrogation panels at hearing designed to get to the core of these problems, while others have offered various proposals to deal with the effects of something that is already out of the bag. The latest such package of ideas comes from independent Connecticut senator Joe Lieberman. His focus? Excessive commodity speculation by big funds. His solution?

Our good friend Laura Mandaro over at Marketwatch brings you the latest:

The head of the Senate's government affairs committee [Mr. Lieberman] Wednesday unveiled a series of restrictive proposals aimed at financial speculators in commodities, including one that would place an outright ban on big pension funds buying agricultural and energy futures.

The three legislative ideas from Connecticut's Joe Lieberman, which the independent senator plans to discuss at a hearing June 24, count as the most drastic efforts yet from lawmakers targeting potential culprits behind high oil and grain prices.

The most severe would prohibit private and public pension funds with more than $500 million in assets from investing in agricultural and energy commodities traded on a U.S. futures exchange, foreign exchange or over the counter, according to materials provided by Lieberman's office.

A second plan would direct the Commodities Futures Trading Commission to establish total limits on the share of the commodity market held by financial investors.

A third proposal would direct the futures regulator to impose speculative-position limits on any stakes not related to real hedging activities, an action that could limit the commodities-swaps activities of big investment banks such as Goldman Sachs Group

We are not, as some continue to argue, witnessing the ebb and flow of natural market forces at work. We are instead seeing excessive market speculation at work and that is why our government must step in with new laws to protect our economy and our consumers, said Lieberman in a statement.

Lieberman will most likely introduce legislation with Sen. Susan Collins, R-Maine, after the July 4 holiday recess, said a staff representative of Lieberman. That legislation could incorporate some or all of these proposals, depending on feedback from witnesses at the hearing, as well as the public.

Investment banks and pension funds aren't waiting for that forum to make their anxiety about Lieberman's proposals known. A statement penned by six influential trade groups, including the Securities Industry and Financial Markets Association, the Financial Services Roundtable and the Investment Company Institute, warned that efforts to bar financial investors from commodities markets could substantially harm the ability of Americans to protect themselves against inflation.

Blaming speculation or any specific trading practice for rising or falling commodity and energy prices without real evidence of wrongdoing is misguided, said the statement. Those kinds of charges create the very real possibility that speculators will choose to abandon these markets and use their investment dollars elsewhere, and such an exodus threatens the healthy functioning of the markets, it said.

The CFTC, under pressure from Congress to show it is working to rein in excess speculation in commodities markets, said Tuesday that it was closing the London loophole by making London traders of the benchmark U.S. oil contract follow the same speculative-position limits as their U.S. counterparts.

Despite analysis from the futures watchdog that there's little correlation between high commodities prices and the recent wave of financial investing, many big users of energy and grain markets argue that supply and demand can't be the only reason for the commodities boom. They've called for more regulation of financial investments in commodities.

Some investors and exchanges, including the CME Group and the New York Mercantile Exchange, however, have warned that more restrictions could drive investors to overseas or less-regulated markets -- and could even inflate prices further.

Next week will tell more, as these ideas get to be aired at hearings in Washington. Surely, we will hear from more than just the senator on this topic. It is juicy enough, to say the least.

Although it was not apparent today as yet, any meaningful breakdown in crude oil prices could take gold down to near recently visited support levels. However, the next three trading sessions will continue the exhibit the nervous anticipatory patterns we have become accustomed to in previous pre-Fed meeting periods. We also expect that Q2 writedown prospects for Citigroup will rekindle enough safe-haven buying to mitigate at least some portion of the potential losses that an oil correction could trigger. A close above $900 spot this evening will certainly be commendable, but at the end of the day, gold needs to recapture the $945 area before higher confidence levels are seen among participants. There is work to be done, therefore.

Happy Trading.