THE PRICE OF PHYSICAL GOLD rose 0.9% during Asian and early London trade Monday, recovering Friday's drop as world equity… … and commodity indexes ticked some 0.5% higher.

Rice and wheat futures rose, while Japanese bond yields continued to sell off after Friday's CPI report showed the highest rate of inflation in ten years.

Crude oil meantime dipped below $119 per barrel as 1,200 workers at the UK's main North Sea oil port continued a two-day strike over pension rights, causing what the newswires call “panic” buying by Scottish drivers.

“If the global economy has struggled out of the frying pan of the credit crunch, it seems destined to fall into the fire of high inflation,” warns Tim Bond, head at Barclays Capital in London for global asset allocation.

“High inflation is cruel to the owner of financial assets.”

“Going forward” in the Gold Market, “the wedding season in India will continue until the end of May,” notes the latest Refining Monitor from Mitsui, the precious metals dealer.

“Furthermore, the [physical Gold Market] is likely to be active once again in the run up to the Akshaya Thrithiya festival on 7th May which typically marks an auspicious period in the Hindu calendar.

At current Gold Prices, “bargain hunting will occur.”

But “seasonality is [only] meaningful to Gold when it is a commodity and meaningless when gold is a currency.” believes Jim Sinclair, veteran gold trader and editor of JSMineset.com.

“Jeweler's demand is no factor when gold is running as a currency. [So] I see seasonality as a non-factor in the present Gold Market.”

This week's key event for currency traders will be the Federal Reserve's decision on US interest rates, due at 18:15 GMT on Wednesday.

It comes as US households start receiving more than $110 billion in emergency tax rebates, approved by Congress in an attempt to revive consumer spending – now dented by the worst consumer confidence since 1982 according to the University of Michigan's latest index.

“The money's going to help Americans offset the high prices we're seeing at the gas pump and the grocery store,” claimed President Bush at the weekend.

“It will also give our economy a boost to help us pull out of this economic slowdown.”

Both economic theory and a study of tax rebates given in 1975, however, suggest that only $1 in every $4 of the package will be spent by consumers during the next three months, reports the Financial Times.

“If the Fed signal any pause in the US interest-rate cutting cycle, that would put pressure on commodities as the Dollar might strengthen,” believes Peter Tse, head of precious metals at Scotia Mocatta in Hong Kong.

All of the twenty biggest bond dealers who trade directly with the Fed in the New York money markets expect a “baby-step” cut of 0.25%, according to a Reuters survey.

Late Friday, Chicago's interest-rate futures market showed three-in-four traders betting on a cut. The remaining 24% think the Fed will hold steady, halting its eight-month “reflation” campaign after watching the US Dollar lose one-tenth of its value since last summer.

Now Bloomberg says that 11 out of twenty-four Gold Market professionals it surveyed at the end of last week advise selling the metal.

Eight said to buy; five were neutral.

Meantime in the bond market – where the Risk of Default Mapped Gold Prices during the first four months of this year – the credit quality of European corporate debt is deteriorating at a “quite alarming” rate, says a new report from Moody's Investor Services, the ratings agency.

“Uncertainty about the US recession, nervous financial markets, higher input costs for business and an appreciating Euro are restraining the Eurozone economy,” according to Christine Li and Kimberly Forkes, writing for Moody's in London.

The European single currency today crept back to $1.5685, gaining 0.8% from Friday's three-week low.

That capped the Gold Price in Euros just below €570 per ounce at the AM Fix in London.

The British Pound also regained half-a-cent this morning, touching $1.9882 against the US Dollar and holding the Gold Price in Sterling just below £450 per ounce.

Today in London the UK's biggest mortgage lender, HBOS, was widely rumored to be preparing a rights issue worth £4 billion ($7.95bn) to help shore up its balance-sheet.

Following last week's confirmation of its £12 billion rights issue, Royal Bank of Scotland – the UK's second-largest bank – is now expected to make 7,000 staff redundant as it works to integrate ABN Amro.

RBS bought the Dutch bank for £56.8bn ($112bn), sealing Europe's biggest-ever banking deal, after a bidding war in October '07.

Adrian Ash
BullionVault

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.