The dollar set yet another new record low against the euro in earlier trading today, but EUR-USD gains stalled just shy of the 1.6000 objective. Further out, 1.6200 is likely to attract. The dollar remains range bound, but near historic lows against the yen, Swiss franc as well as a trade weighted basket of currencies.

The market seems to be discounting rhetoric from last weekend's G7 meeting regarding currency market volatility. While the dollar wasn't mentioned specifically, there's no doubt in anyone's mind that recent record dollar losses are the primary worry for just about everyone except the Fed. With their eyes squarely on risks to growth, and with seemingly total disregard for inflation, the Fed is making every effort to inflate the US economy out of the recession.

However, the dollar has gotten a modest boost from comments by French finance minister Christine Lagarde, suggesting that speculators may have "misunderstood" what the G7 had agreed to last weekend. Those sentiments have been echoed by Eurogroup Chairman Jean Claude Juncker.

The message has been reiterated that the G7 does not like excessive volatility in the FX market and that it is bad for global growth. This is the same message, what is there to misunderstand? I would argue that it's not the volatility they don't like, it's the levels. While I don't have ready access to actual volatility studies, anecdotally vols are probably not far from normal levels. In nearly 20 years of following the FX markets, I've certainly seen much higher volatility.

Yep, it's the levels and the trend that has everyone concerned. Today's comments, like last weekend's are nothing more than a feeble delaying action, much like the Treasury's oft stated, but never backed-up 'strong dollar' policy. Until these comments are supported by shifts in monetary policy - either a rate cut by the ECB or steady/tighter policy by the Fed - the trend is unlikely to be broken. Neither of those seem very likely any time soon.

Some of the premium for a Fed rate cut larger than 25bp has come out of the market in recent sessions as a result of some more encouraging earnings news. However, odds of a half-point cut at the next FOMC meeting on 30-Apr are still about 18% based on Fed funds futures.

Oil has surged to another new record high above $115 a barrel as EIA data showed both crude oil and gasoline stocks fell in the week ended 11-Apr. Concerns are growing that gasoline is likely to exceed $4 per gallon as the peak US driving season gets underway.

Funds continue to pile into oil as a hedge against the declining dollar. OPEC contends that it is this speculative frenzy, tied to the ailing greenback, that is to blame for record oil prices. Consequently they are not inclined to increase production amid early indications that demand is falling in the US, the worlds largest consumer of oil. It is concerns about waning demand that has prompted US refiners to scale back on purchases at these lofty prices, further tightening the gasoline stocks and driving up the price at the pump.

Gold is the preferred hedge against broad-based inflationary pressures and the declining dollar, so we feel it is just a matter of time before the yellow metal is also trading at new record highs.

It was reported today that the price of Thai 100 percent B-grade white rice, a global benchmark, hit $950 a ton. The price has tripled in less than four months, since the beginning of the year. The Philippines, the world's largest importer of rice, was only able to cover about 2/3 of a recent 500k ton order. The rapidly developing global food crisis is likely to lead to further political and social unrest.

The fact that net exporters of food commodities are turning protectionist also ramps up geopolitical tensions. Countries faced with internal strife resulting from famine are more likely to lash out at their neighbors and countries no longer selling them food.

Several of these countries are nuclear powers. Countries like China and India have significant currency reserves and may be able to forestall any major unrest by subsidizing food imports. However, it is the worsening crisis in North Korea that is a particular concern. See the article referenced in Market Movers below.

It has also been reported that radical Islam is making considerable inroads in countries struggling to feed their populations. This heightens the risk of terrorist activity around the globe.

Once again, gold offers a measure of protection against geopolitical tensions and the threat of terrorist attacks. Factor in the declining dollar, spiraling inflation, a vulnerable stock market, considerable systemic risks to the world's banking/financial system; and with gold still nearly $100 off its record high, now may be the perfect time to diversify your portfolio with a physical gold purchase.

Gold Market Movers:

US Philly Fed index tumbled to -24.9 in Apr, well below market expectations, versus -17.4 in Mar.

US leading indicators for Mar +0.1%, versus -0.3% in Feb.

US initial jobless claims for the week ended 12-Apr up 17k to 372k, better than market expectations, versus a revised figure of 355k the previous week.

Fed conducts $25 bln TSLF auction of 28-day funds.

US M2 for week ended 07-Apr at 16:30 EDT.

Canadian CPI 1.4% y/y.

$1,000 gold still very cheap in real terms

UK: Government may take on bank mortgages to ease lending gridlock

Oil surges as investors hunt 'anti-dollar'

WFP warns of potential humanitarian food crisis in DPRK following critically low harvest