Is Gold Breaking Out as The Dollar Falls?

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...where do we see the gold price going from here. Onwards and upwards at least in dollar terms, but probably in fairly small steps. Will it break through $700? Probably, but perhaps not until summer is well behind us...

Dollar weakness: gold strength, has been the maxim of many gold market followers, and indeed we seem to be in a period when the dollar continues to fall, while gold seems to be breaking out of its recent tight trading range. Indications are that the yellow metal will now move upwards further but whether there is sufficient momentum there to breach the $700 level at this time remains to be seen.

Much is said about China's huge foreign exchange overhang of some $1.3 trillion dollars, coupled with its low gold holdings - the theory being that China will bail out of the crumbling dollar and replace some of its reserves with gold which would have an enormous upwards impact on the gold price. Personally I think this is an unlikely scenario as so much of China's economic performance relies on sales into the huge US market. Bailing out of the dollar in favour of gold would have an enormous negative impact on the US, as well as on economies all around the world. After all, when you have a $1.3 trillion foreign exchange surplus this is almost embarrassing these days and leads to calls for a currency revaluation which could hit China's exports. At this level, if the value of reserves diminishes by a few billion because of depreciation in the value of the currency of your major trading partner, who cares - apart from those promoting the increased gold holding scenario! Why bite the hand that feeds you!...

Fundamentals, though, continue to look good for the gold price in terms of no serious increase in production looming. This year's latest figures suggest perhaps a tiny increase in gold output...So where do we see the gold price going from here. Onwards and upwards at least in dollar terms, but probably in fairly small steps. Will it break through $700? Probably, but perhaps not until summer is well behind us in the Northern Hemisphere, although short term factors could lead to temporary surges.

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