Spot Gold Prices jumped almost 1.3% from an early dip on Monday in London, rising above $879 per ounce as crude oil held flat but the latest European inflation data showed the cost of living rising at a 16-year record.
"Everywhere I turn, inflation is out of control," said Peter McGuire of Commodity Warrants Australia to Bloomberg TV overnight.
"I see Gold spiking again some time before the end of the year. I wouldn't be surprised to see it back over $1,000 or higher."
This weekend's meeting of G-8 finance ministers noted that "elevated commodity prices pose a serious challenge to stable growth."
But the summit failed to agree any concrete action and also ignored the issue of Money Supply Inflation altogether.
While a call from the Italian delegation to block financial trading in the world's food and oil markets was rejected by the US and UK teams, "the G8's focus was clearly not on currencies as markets had anticipated," notes Khoon Goh of ANZ-National Bank.
"Many were expecting a least some mention in the communique, given the effect a weak US Dollar has on commodity prices and therefore on global inflation."
Financial traders raised their bets on a European rate-hike this morning after Eurostat – the European data agency – said the cost of living in the 15-member single currency zone rose 3.7% in the year to May, the fastest clip since 1992.
Across the Channel in the United Kingdom – where a strike by fuel-tanker drivers demanding inflation-linked pay rises has now left up to 1 in 9 filling stations empty – tomorrow's Consumer Price data is expected to spark a open letter of apology from the governor of the Bank of England.
Forecast at 3.2%, the CPI is supposed to stay within one per cent of the official 2.0% target. Yet the Bank of England has been cutting interest rates since December, however, in a bid to reverse the slump in residential real estate prices.
Construction of new homes is set to drop by 40% this year from 2008, says top home-builder Barratt, leading to the direct loss of 100,000 jobs.
But with the Pound Sterling sliding on the currency markets, household perceptions of UK inflation surged to 4.9% per year in May.
American households now peg US inflation for the year ahead at 5.2% per year – the fastest rate since 1982 – according to last week's Michigan Sentiment Survey.
"We all understand the danger of inflation," said Stuart Rose – head of top UK retailer Marks & Spencers – at a conference in London last week. "But the alternative [if interest rates rise] is stagflation, which is something you don't want."
"I'd prefer a bit of inflation," Rose said, before admitting that food-price inflation for British shoppers is now approaching 10% per year.
Strikes over rising fuel costs turned violent in Spain this weekend, reports Thomson-Reuters, while "authorities from Thailand to the Netherlands face protests over pump prices."
"Gold is starting to find its own feet in an inflationary environment," believes Simon Weeks, head of precious metals trading at the Bank of Nova Scotia.
"Over a longer period of time it should outperform most other commodities."