As highlighted in yesterday's comment, a coordinated dollar policy seems unlikely. The Fed and the ECB are on completely different tacks at this point, the former focused squarely on risks to growth and the latter possibly more resolutely focused on price risks. One might expect plenty of talk about a 'strong dollar', but without the benefit of policy it's just that...talk.

UK finance minister Alistair Darling has called on the G7 to come up with a "clear and detailed plan of action" to resolve the global credit crisis. The IMF has recently suggested that the total cost of the crisis, which began last August, is likely to be close to $1 trillion.

Initial talk of a G7 plan seems to focus on improved risk management, transparency and monitoring of the world's banks. This may give the market some comfort, knowing someone will be watching and might prevent a similar crisis in the future. But what about the horse that's already out of the barn?

With the chiefs from ten major banks in attendance at this weekend's G7 meeting, one can be fairly sure there will be calls for continued and ready access to central bank supplied liquidity. One can also assume there will be considerable pressure applied, particularly to the ECB, to cut rates. This path of massive liquidity injections, bailouts and lower interest rates is already well established and is likely to be expanded.

This path is also the path of global currency debasement. The dollar is certainly being debased at a much faster pace as a result of Fed policy, but other currencies will suffer as well. The British pound has fallen to a new all-time low against the euro in anticipation of a rate cut by the BoE on Thursday. Plummeting home prices and consumer sentiment in the UK are likely to force the BoE to move, despite the high rate of inflation.

Meanwhile the ECB is expected to hold steady on rates as it maintains its staunch inflation fighting agenda. Eurozone GDP for Q4-07 was confirmed today at 2.2% y/y. Backed by recent generally favorable economic data, particularly out of Germany, it seems that Europe is weathering the economic storm better than the US and the UK, at least for the time being. With Eurozone inflation running around 3.5%, it would be very difficult for the ECB to cut rates at this point.

With the Fed expected to cut rates by at least another 25bp at the end of April, the widening interest rate differential with Europe is expected to keep the dollar under pressure. Gold offers the best hedge against currency debasement, whether you live here in the States or overseas. The recent pullback offers an excellent opportunity for first time buyers to begin building a gold position. It is also an opportunity for current gold owners to add to positions.

As if the hedging properties of gold against a declining dollar, inflation, general economic uncertainty and systemic risks to the global banking system weren't reason enough to buy gold; Mike Kosares, the President of USAGOLD - Centennial Precious Metals has written an excellent article entitled Golden Gut Check: Why gold is likely to keep moving higher over the long run. This piece closely exams the supply side of the gold equation and builds a pretty compelling case for an impending shortage.

Mike's article also addresses the decreasing significance of official sector gold sales. This premise is consistent with our expectations that if the IMF gold sales are approved, the market will readily absorb them with minimal impact on price.

Once again, pretty compelling evidence that the recent corrective setback in gold is a great buying opportunity.

Gold Market Movers:

US wholesale sales for Feb tumbled 0.8%, much worse than the market was expecting, versus a revised +2.3% in Jan.

EIA crude oil stocks for the week ended 04-Apr -2.3M barrels, a bigger drawdown than the market was expecting. Oil has rebounded in reaction.

Eurozone GDP for Q4-07 confirmed at 0.4% q/q, 2.2% y/y.

German trade surplus for Feb €16.9 bln, better than expected.

BoJ holds steady on rates, in line with expectations.

Fed members worried about deep recession

WSJ: Fed weighs its options in easing crunch

Volcker says Fed's Bear loan stretches legal power

Gold regains breath, will return to explosive growth

Bullion should shake off IMF's gold sales

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with the precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his personal market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

-- Posted Wednesday, 9 April 2008 | Digg This Article