Fed Cuts, Dollar Drops and Gold Piles on the Pressure

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...The contrarians would say that we are probably due a correction as the price may have risen too far too fast, but it seems the momentum is with gold at the moment and there could well be further gains yet before the price stabilises.

...When the dollar falls, gold usually rises and yesterday was no exception. A Reuters poll of traders and analysts two days ago found expectations were that the gold price may reach $730 this year! It may well reach that level this week with the yellow metal trading comfortably above $720. Predictions of a breach of the high reached in May 2006 are now strong and many analysts feel that $800 gold is within sight. All eyes are on the gold price today and it was holding up well in early trading.

The futures market is certainly looking to higher values. December delivery rose to $735.50 an ounce on the Comex during the afternoon - a 26 year high. And investors are piling in - The StreetTRACKS gold ETF held a record 575.57 tonnes on Wednesday. The contrarians would say that we are probably due a correction as the price may have risen too far too fast, but it seems the momentum is with gold at the moment and there could well be further gains yet before the price stabilises. There is a perceived resistance level at $730, but this is vulnerable to a quick move - as was the $700 mark which was seen perhaps as more of a psychological barrier than a chart resistance level....

But, be warned. Gold often confounds. The market could be spooked, perhaps by an upward reaction in the dollar which may well occur should traders think the fall has been overdone. But, there is no sign of any real medium or long term strength in the US currency and the likely pattern is seen as continuing dollar weakness and gold strength.

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