Despite recent corrective/consolidative activity, the long-term uptrends in gold and oil remain intact, as does the long-term downtrend in the dollar. These trends are reflective of the biggest concern in the markets of late -- inflation.

On Friday Eurozone Harmonised Index of Consumer Prices (HICP) for May came in at a record 3.6% y/y, driven primarily by rising energy and food costs once again. This is the highest reading for inflation in Europe in sixteen years and is a pace well above the ECB's comfort level of 2%.

The expressions of concern and calls for action across the Eurozone have been resounding. ECB President Jean-Claude Trichet called it policy makers' "biggest challenge."

In Australia, the TD Securities-Melbourne Institute gauge of inflation came in at 4.5% y/y, the highest reading in the five and a half years since the survey began.

Thailand and Indonesia reported accelerating inflation. CPI in South Korea jumped to a seven year high.

Last week, South Africa reported that their CPIX inflation index for Apr surged to an unexpectedly high 10.4%. This was the highest reading in more than five years.

All around the world, "inflation" has become the watchword as energy and food prices continue to soar. Here in the US, the most recent CPI reading was 3.9% y/y (Apr), but I don't know anyone who believes that number accurately reflects the real rate of inflation.

ShadowStats is a private source for government statistics that according to their website "exposes and analyzes the flaws in current U.S. government economic data and reporting." Their measure of US CPI suggests the rate of inflation is nearly 12%.

ShadowStats also shows that the governments own measure of inflation based on methodology from the 'pre-Clinton era' is nearly double the current official reading. Undoubtedly, the personal analysis of anyone who buys gasoline or groceries is likely to find their estimate closer to those of ShadowStats.

Forecasts for CPI in the months ahead suggest that the y/y rate of inflation is likely to climb to 5% in Q3. That may well equate to an SGS Alternate CPI reading near the hyper-inflationary high of 14.76% from March of 1980.

We have repeatedly noted that the full economic impact of the present rate of inflation has yet to truly be felt here in the US. However, pass-through effects are now starting to be seen.

Dow Chemical announced last week that it would be raising its prices by as much as 20% beginning 01-Jun to offset the soaring cost of energy. This would be the largest price hike in the company's 111-year history.

"Our first quarter feedstock and energy bill leapt a staggering 42 percent year over year, and that trajectory has continued, with the cost of oil and natural gas climbing ever higher," Andrew N. Liveris, Dow chairman and CEO, said in a written statement released by the company. "The new level of hydrocarbons and energy costs is putting a strain on the entire value chain and is forcing difficult discussions with customers about resetting the value proposition for our products."

Huntsman Corporation, another US based chemical company, also announced across-the-board price increases of up to 25% for its products.

This is a theme that is likely to be echoed time and time again in the months ahead -- even if oil comes off its highs as pass-through effects tend to lag.

Gold is the classic hedge against inflation and for that reason the downside is thought to be limited. An uptick in jewelry demand on the recent dip within the range was also noted. Again, evidence that the downside is limited from here.

Buying opportunities remain highlighted and a climb back above 900/903 would clear the way for a short-term retest of the 935.30 high from 22-May. Above the latter, more important resistance at 952.80/954.70 comes into play.

Gold Market Movers:

US ISM for May up to 49.6, versus 48.6 in Apr.

US construction spending for Apr -0.4%, better than expected, versus -0.6% in Mar.

UK mortgage approvals for Apr hit a record low of 58k, well below expectations.

UK manufacturing PMI for May falls to 50.0, below market expectations, versus a revised reading of 50.8 in Apr.

Eurozone manufacturing PMI for May revised slightly higher to 50.6, versus 50.5.

China PMI for May softer at 54.7, versus 55.4 in Apr.

Bradford & Bingley warning on profits

Wachovia asks chief to retire

Airline industry to plunge into loss