Gold: A Pause for Thought

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The big question facing the gold investor now is has the metal price moved too far too fast. The emphatic answer from the gold bugs is no, but they have been wrong before.

The big question facing the gold investor now is has the metal price moved too far too fast. The emphatic answer from the gold bugs is no, but they have been wrong before. Still many of the fundamentals point to further increases and many pundits predict perhaps $800 this year, but I'm not so sure.

There is certainly a strong element of selling in the market with prices being pretty volatile on a day by day basis, and there are some huge short positions out there which suggest that some of the big financial institutions are expecting a downturn. It probably wouldn't take much to knock the price back $10-20 or more. Strong Central Bank sales and any, even shortlived, sign of dollar strength could have this effect, particularly as non-US monetary authorities and governments may see a rapidly declining dollar detrimental to their own economies and take steps to stabilise the situation in the short term...

Longer term, though, the prospects for further gold price increases remain good. The gold price remains basically an indicator of strength, or otherwise, in the US dollar and most observers see further declines in the value of the greenback ahead as the US tries to get to grips with its massive deficit.

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