Spot gold was bid at $912.50 an ounce at 1417 GMT, against $908.45 an ounce late in New York on Wednesday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose $3.50 to $912.80 an ounce.

Gold sold off on Wednesday in line with other commodities, slipping to an eight-week low, after the U.S. Commodity Futures Trading Commission said it was considering a clampdown on excessive speculation in commodities.

Afshin Nabavi, head of trading at MKS Finance in Geneva, said the slip was met with some light physical buying in the Far East and Europe.

“We saw some small demand out of the Far East this morning,” he said. “But India and the Middle East is still very quiet.”

“Also, the U.S. dollar is a bit weaker today,” he added.

The dollar gave back some of the previous session’s gains on Thursday as equities firmed in Europe and U.S. stock futures rose, denting interest in the currency as a haven from risk.

A recovery in stock markets after a five-day losing streak, gains in industrial commodities such as oil and base metals and a less cautious tone to currency markets suggested recent sessions’ heavy risk aversion may be abating.

Oil’s tick higher also helped support gold, which can be bought as a hedge against oil-led inflation.

Demand for gold investment products such as exchange-traded funds — a major support of prices earlier in the year amid volatility in other markets — remained sluggish, however.

Holdings of the world’s largest gold ETF, the SPDR Gold Trust , declined more than 10 tonnes on Wednesday, while those of ETF Securities’ ETFS Physical Gold product slipped 12,500 ounces 0.4 percent.

OUTPUT FALLS

In supply news, South Africa, the world’s third largest gold miner after China and the United States, said its output of the metal fell 10.5 percent in May from a year ago.

Among other precious metals, platinum was at $1,104.50 an ounce against $1,096, while palladium was at $235 against $231.50. Both metals are primarily used in car manufacturing as a component in catalytic converters.

Traders of palladium in particular were cheering news from China that its passenger car sales rose 47.7 percent in June from a year earlier.

Chinese cars are usually petrol-fuelled, meaning they use a higher proportion of palladium than platinum, which is a primary component in diesel catalysts.

Dealers say as palladium is still relatively expensive, it is unlikely to immediately post significant new gains, although platinum has met some interest.

“Even though there is very little obvious buying taking place right now, platinum is still managing to hold its head above $1,100,” said one analyst, adding strong turnover in Shanghai suggests good Chinese buying at these levels.

Elsewhere silver was at $12.85 an ounce against $12.84.

LONDON, July 9 (Reuters)

A Wall Street Journal story describes the CFTC “expanding surveillance of energy markets” to counter “potential oil-market manipulation.” The Journal notes that it’s unusual for the CFTC to announce an investigation in progress, so there’s a clear PR component to all this. Too bad there’s not a sanity component.

According to Rupert’s new rag:

Many economists and oil-industry executives say possible shenanigans by market traders have little or nothing to do with the high price of oil. They maintain that the rise is mainly due to fundamental factors such as rising demand, constrained supplies and the weak dollar.

Still, suspicions have lingered that speculators have helped drive oil prices higher. At a series of congressional hearings over the past month, energy consumer groups and some financial insiders have contended that large investments in commodity futures by hedge funds and pension funds are distorting prices.

After months of a building blame-game against “speculators” across nearly every commodity sector, I just want to tear my hair out when I see reporters posit these either-or explanations. Because, as even a middling UN bureaucrat can recognize, an increasingly worthless U.S. dollar is what’s driving hedge funds and pension funds to seek shelter in tangible goods.

But as long as this elephant in the room goes unrecognized and/or unacknowledged, we get pernicious proposals like that of Holy Joe Lieberman, aiming to limit the role of institutional investors in the commodities markets.

For more on all of this, check out Eric Fry and Paul Van Eeden in yesterday’s Rude Awakening. Don’t miss the chart tracking the oil price with M3.

Source: Blame the Speculators, Continued

The day’s action was more than a bit counterintuitive, since the Energy Information Administration’s weekly inventory report had crude supplies plummeting by 8.8 million barrels for the week ended May 23, the biggest drop since 2004. Analysts were looking for a 750,000 barrel gain in stocks.

However, “Lower oil stocks were due to problems offloading oil in the Gulf of Mexico, and this week’s deficit will show up in next week’s report as the tankers offshore are unloaded,” wrote James Williams of WTRG Economics.

Meanwhile, the Commodity Futures Trading Commission said that it started a wide-ranging investigation of U.S. oil markets six months ago, with a focus on possible price manipulation. The CFTC said it took the unusual step of publicizing the probe “because of today’s unprecedented market conditions.”

In OPEC news, the United Arab Emirates says that current crude prices are going too fast too high, according to a Reuters news report Thursday, and that the UAE is “willing and well prepared” to raise output if there is a supply shortage, according to the report. And Indonesia, struggling to keep up with its oil production quotas within OPEC, said it will withdraw from the cartel by the end of the year.

Source: Crude Beats a Retreat – Drop Comes Despite Huge Inventory Plunge

A desperate Democratic Senator, Claire McCaskill, warned during a Senate hearing on commodities speculators that “the American people are about to take out pitchforks” because of the cost of groceries and gasoline.

McCaskill then told an official from the U.S. Commodity Futures Trading Commission: “If you don’t do something, Congress will,” according to a report in the LA Times.

Of course, it doesn’t appear to have struck the outraged Senator to consider mere market forces such as supply and demand or, in the case of oil prices, increased demand from emerging markets and decreased supply because of bad weather or geopolitical events.

To learn more about what is pushing up the price of oil, read on at the ContrarianProfits.com peak oil primer, Peak Oil Facts: How to Survive the Coming Crisis.