Good Afternoon,

Gold prices rose more than 1.5% for the second time this week, as the dollar came off its high against the euro following the ECB's decision to stand pat on interest rates. As expected, strong anti-inflation jawboning was present in the post-meeting language although traders see the central bank eventually caving on rate the issue as the group's economies slow. Crude oil did not pull off a fifth day of gains after having reached nearly $124 per barrel, as OPEC pointed out that supplies are 'ample' and as growth in the US and Europe slows.

At last check, black gold was quoted at $122.60 per barrel, while the greenback was trading at 73.47 on the index. 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.

New York spot gold reached as high as $886 before tracing back to near $881 in the afternoon hours. In the meantime, US consumers tried their best to cope with rising energy costs by...going shopping. Mind you, they did so at big-box stores, and sought out the deepest of bargains. Jobless claims fell on the weekly report although continuing claims were at a four-year high of 3 million. Silver rose 20 cents to $16.80 while platinum added a very healthy $60 to $2020 and palladium gained $7 to $434 per ounce.

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 obvious Western hedge fund speculative activity notwithstanding, the Canadian Economic Press reported 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.

Not everyone agrees that banning trading is the solution to the problem. Half a world away from India, in Chicago, sits John Casey, the rice pit chairman at the CBOT. He has seen the gambling dice being thrown by speculative funds in this market - from front row, center. Marketwatch reports his take on the recent situation in rice prices:

Casey explained that the traders and other followers of agricultural commodities began to notice about a year and a half ago that several factors were coming into play that would cause a squeeze in supply of rice and other agricultural futures at a time when demand was rising in places like China and India.

It became apparent we were going to become incredibly tight, he said. Then at the beginning of the year we started noticing millions of dollars of hedge fund money sloshing around all agricultural commodities. David Lehman, director of commodity research and product development at the CME Group, said that hedge funds, or other speculative money, have certainly added to the fever around these commodities lately.

But he added that the so-called hot money is not what is driving the market, as some have claimed in the oil and gold markets. The latest report from the Commodity Futures Traders Commission about outstanding rice contracts shows that only about 19% of them are held by non-commercial investors, or companies that might be speculating as opposed to actually hedging against price moves.

He said effects such as production problems, demand increases, the increase in energy costs for producers, and even the decline in the value of the U.S. dollar have all played even bigger roles in contributing to the surge in prices. The dollar itself has contributed to about 25% of the price increases in agricultural commodities, especially in corn and wheat, he said.

We had a bit of a perfect storm in a lot of these markets, over the past year, he said. Commodities are very energy intensive to produce and transport.

Like with tech stocks, housing, and oil and gold before them, there is an element of a bubble to the surge in agricultural commodities prices. But unlike with the others -- even oil -- the result of higher prices has become a global problem almost immediately. It's one thing to lose your retirement money on Cisco Systems or Yahoo, or even to lose your house on a bad subprime loan. But these rising costs are threatening the survival of millions of people.

Banning trading isn't the answer. Open markets set more efficient prices. Indeed, the origins of the CBOT involved Midwestern farmers who needed to trade futures to hedge against crop failures. In the old days, traders could even look out the windows of the old exchange and, local lore has it, rains in Chicago could affect prices across the board.

Today, however, computers link news and prices across the globe, and so a cyclone in Asia can conceivably push prices in Chicago. The system is more complex, and more fragile. The food crisis is likely the first of many we'll see over the years as vital commodities suddenly appear scarce: oil, food, energy, even water. It's a warning sign not just for markets and investors, but for the entire prospect of a global economy.

All eyes still remain on oil (including those of central bankers) but Bloomberg reports that gold's failure to keep up with gains in crude oil may signal lower prices, said Dennis Gartman, an economist in Suffolk, Virginia, and the editor of the Gartman Letter. It now takes about seven barrels of oil to buy an ounce of gold when the ``normal'' ratio is 15 to 1, Gartman said in a report to clients today. ``If gold cannot rally as crude oil spirals higher, what shall happen to it when crude oil does eventually top out and head lower,'' Gartman said. ``The trend for gold remains down.''

Although the present gold-oil relationship does raise valid doubts, surely, the gold market will also take cues from price patterns in other commodities as well as currencies in the near-term. It could also be possible that the next sell signal in oil will have some of the proceeds find their way into gold for the next leg of another play. Final gold sales figures from India might have an impact as well, perhaps even by tomorrow, but for the moment, the metal remains within the range.

Happy Trading.