With markets in the U.S. and UK closed yesterday for U.S. Memorial Day and UK bank holiday, gold traded sideways in slow trade in Asia and Europe. Stock markets in Asia were positive overnight but European markets have come under pressure and the FTSE has given up its early morning gains to trade flat for the session so far.

Gold was up 3% last week and silver surged nearly 8% and in normal circumstances profit taking would be expected in the early part of this week. But with oil remaining near record levels and inflation concerns increasing significantly, gold (and silver) may again surprise to the upside. Oil was up by 4.6% last week and is up another 0.6% today on concerns regarding supply disruptions in Nigeria. Gold and silver will likely outperform oil in the coming weeks.

The dollar is slightly stronger against most currencies except the yen and Swiss franc. The dollar is likely to be tested by the economic data released in the U.S. today which should result in gold being well supported at these levels, especially as physical demand internationally continues to surge (as seen in the latest gold demand figures from Dubai).

Today’s Data and Influences

After yesterday’s quiet U.S. Memorial Day and UK bank holiday, markets will become busier again today and consumer confidence figures in the U.S. may set the tone for the market. New home sales and the Case-Shiller House Price Index will likely show a continuing deterioration in the U.S. housing market and economy which could put further pressure on the dollar.

Dubai First Quarter Gold Trade Jumps 73%

On Friday we looked at surging demand for gold (particularly investment demand) in China. Today comes news of surging demand from the Middle East and some of the trillions of petrodollars in the region seek the safety and inflation protection of gold. This trend is set to continue as there are now massive inflationary pressures throughout the region as many of their currencies are pegged to the declining U.S. dollar.

Gold trade surged 73% to $7bn in the first quarter of 2008 due to Dubai's growing significance as a gold refining centre and regional gold trade hub, said Dubai Multi Commodities Centre (DMCC).

Dubai’s gold trade has witnessed consistent growth over the last six months, rising 42% over the fourth quarter of 2007, when it reached $4.96 bn, DMCC said. A total of 115 tons of gold was exported from Dubai in the first quarter of 2008, an increase of 74% from the corresponding period in 2007, and 49% higher than exports during the last quarter of 2007, according to figures compiled by the Statistics Department of Dubai World.

There is growing interest in the DGCX and it is and will assume increasing importance as an international gold exchange, particularly in the Middle East, central Asia and Africa.

This is likely to be the case with an oil exchange in Dubai. Dubai is now the Middle East’s recognised financial services hub and in a short period of time has gained a solid reputation as good place to do business and invest. The Dubai Mercantile Exchange (DME) bridges the time zone gap between Europe, Asia and North America and provide a financially secure, well-regulated and transparent environment for the trading of energy futures, options and other products.

With increasing competition from financial markets internationally, including Shanghai and Dubai, politicians and regulators should be wary of unnecessary intervention in financial markets, including commodity markets, as it would not be wise to kill the goose of an efficient market that lays the golden egg of an efficient economy.

Silver

Silver is trading at $18.11/18.16 per ounce at 1200 GMT.

PGMs

Platinum is trading at $2167/2177 per ounce (1200 GMT).
Palladium is trading at $453/458 per ounce (1200 GMT).