Gold and silver futures regained ground yesterday, with the front-month Comex contracts for both metals settling at $1,806.60 and $40.08 respectively – gains of 1.7% and 2.5%. Owners of gold mining shares will also be glad to see that the HUI “gold bugs” index of mining shares appears to have broken out to the upside. With input costs such as crude oil prices falling in recent months and the gold price moving higher, things are looking highly bullish for gold mining companies.

Jim Sinclair’s MineSet also brings good news for gold bulls, in the form of a link to an ArabianMoney article that tells of the LBMA campaigning for gold to become a “Tier 1” bank asset with the Basel Committee on Banking Supervision. Tier 1 assets currently include government bonds. If gold were to be given this status, it would surely increase demand for the metal.

As the King World News Blog highlights, Asian buying is proving critical in supplying a price floor for gold and silver, despite the best efforts of short-sellers to drive the price lower. KWN’s source notes: “physical buyers are just sitting there and constantly accumulating physical gold. There are massive orders for tonnage of gold, incredible amounts between $1,715 and $1,760. This has the effect of putting a physical floor under the price of gold.”

Traders around the world are waiting on the outcome from the US Federal Reserve’s two-day Open Market Committee meeting, Bernanke and the Fed are looking to maintain a constant rate of inflation, at around 3-4%, on the Consumer Price Index. This “financial repression” – as it has been called – is a slow method of devaluing debt and weakening the dollar so as to encourage exports.

But leaving aside the problems with encouraging exports in this manner (as every other major country is looking to do exactly the same thing), it is by no means certain that the Fed can keep inflation on a leash. Furthermore, as Robert Wenzel argues at his blog, there is no correlation between price inflation and employment. This is in-part notable from the fact that CPI and PPI inflation in the US stand at 3.8% and 7.2% respectively, yet unemployment remains stubbornly high. This was also evident from the stagflation of the 1970s.

Fed Chairman Ben Bernanke is due to start his post-FOMC press conference at 14.15EST.