Gold is maintaining a generally positive bias in the wake of Friday's close back above the 100-day moving average. This is seen as a rather bullish signal and the May highs are presently under attack. Penetration of 935.30 would clear the way for a push to important chart/Fibonacci resistance at 952.80/960.88.

The dollar index has retreated to the 72.00 level in line with expectations, following the Fed's lack of resolve on inflation. The Fed held steady on rates last week, but failed to signal that a rate hike was on the horizon. Consequently, all of the dollar gains that resulted from quite hawkish comments from Fed Chairman Bernanke earlier in the month have now been reversed out.

More than 61.8% of the entire rally from 70.70 (14-Mar low) to 74.31 (13-Jun high) has now been retraced. A break of the early-May lows at 71.85/82 would leave the all-time low at 70.70 vulnerable to a retest. Good intervening support is noted at 71.19 (22-Apr low).

EUR-USD has been unable to sustain initial tests above 1.5800, leaving the 1.5843 high from 09-Jun intact. Nonetheless, the market seems inclined to test the resolve of central banks on the dollar and further attacks on the upside (dollar downside) are likely.

US Treasury Secretary Henry Paulson will meet with ECB President Jean-Claude Trichet on Tuesday. That meeting will come just two days before the ECB is widely expected to raise their refi rate 25bp to 4.25%.

I wonder if Mr. Paulson has the nerve to espouse the US "strong dollar policy" when meeting with his peers? I'm guessing Mr. Trichet is wise to the fact that a strong dollar policy starts with some policy -- any piece of policy -- that can be even remotely construed by the market as being supportive to the greenback.

The potential for a rate hike later this summer following tough inflation fighting talk from Bernanke was briefly dollar positive, but last week's Fed policy statement failed to confirm that intent. With the banking and housing sectors still in turmoil, tighter monetary policy now risks crashing the economy.

Present US monetary policy is centered on expanding the money supply at a staggering pace, while holding interest rates at half those of the EU (soon to be less than half). This policy is anything but "strong dollar."

Might Mr. Paulson attempt to dissuade Mr. Trichet from raising rates later this week? I suppose he could ask, but Eurozone HICP inflation for June came in today at 4.0% y/y, twice the ECBs comfort level.

Mr. Paulson might make note of the fact that an ECB rate hike would make the euro more attractive, resulting in an even weaker dollar. That in turn will exacerbate the inflation problem, particularly energy-based inflation, as crude is priced in dollars.

I have a hard time envisioning Mr. Trichet hitching Eurozone monetary policy to US inflationary policy. The ECB has a single mandate and that is price stability. The ECB will raise rates on Thursday.

What's going to be interesting is the press conference. If the ECB signals that further rate hikes are in the offing, look for the euro to surge back above 1.6000. With the US unlikely to raise rates until Dec or maybe even Q1-09, I expect the dollar to head back toward its all-time lows.

The weak dollar is going to keep oil underpinned. In searching for the real culprit to sky-high oil and gasoline prices, the US Congress need look no further than our own aforementioned monetary policy. Even if they want to blame the speculators, arguably it is the declining dollar that is encouraging those speculative flows into crude.

In an interview on Iranian Press TV, journalist and blogger Max Keiser suggests that banks are bolstering their balance sheets by buying oil. If this is true, I wonder how the Fed reconciles that, given all the efforts made in the past year to ensure that the banks remain solvent. If the banks speculate in oil to offset sizable subprime related losses, is that justifiable?

Crude has topped $143 a barrel with potential to $150 and $175 later this summer. Rising tensions between Israel and Iran as well as diversification flows out of equities is causing the most recent run to new highs.

The exodus from the stock market is resulting in additional flows into oil and gold. The DJIA is trading below the point where the stock market would officially be called a bear market. A close below 11,331.62 would confirm a 20% correction in the Dow, signaling a bear market is underway.

Look for gold to remain supported by diversification flows as well as inflation motivated hedging. Our research shows that June and July have historically proven to be excellent months to buy gold based on market cycles.

Gold Market Movers:

US Chicago PMI for June edged higher to 49.6, versus 49.1 in May.

Eurozone HICP for June jumped to 4.0% y/y pace, higher than market expectations, versus 3.7% y/y in May.

UK new mortgage approvals for May fell to a new record low of just 42k.

UK GfK consumer confidence for June drops to -34, versus -29 in May. A new 18-year low.

Japan PMI for June declines to 46.5, versus 47.7 in May.

Oil prices pass $143 a barrel; US gas hits high

Iran to hit Israel if attacked

Avoid U.S. dollar, buy commodities, Jim Rogers says

BIS warns of 'tipping point'

Bank of NY Mellon CEO sees more losses from banks

UK: Crash worries grow over housing market