Gold Price - It's All About Dollar Strength Perception

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...there is the definite possibility that the gold price, which remains very much an indicator of dollar strength, could still drift back further while these perceptions continue and this scenario would now seem likely to remain in place through the holiday season

...the gold price has been struggling over the past two weeks to get back above the $800 mark and, at the time of writing, drifting in the $790s, seemingly far away from the heady days only a month back when it was seen by many to be heading up fast through $850 with the sky being the limit.

Perception is the key. As we pointed out at the time the view on dollar strength could be colored by actions taken elsewhere by Central Banks to protect their own currencies, with the Bank of England subsequently cutting its rate, although the European Central Bank held its level static - despite not long previously talking of increasing rates. Subsequently, the US labour figures have not been as bad as some had feared and November inflation figures were much higher than predicted, with the fall in the value of the dollar putting up the costs of imports in dollar terms. This has led to the view in the main financial circles that perhaps, for the moment, the Fed was unlikely to carry on with its programme of cutting interest rates, giving another short term boost to dollar strength.

The concerted Central Bank action to relieve the credit crunch has also injected a degree of stability into the market that had previously been missing, so some of the safe haven attributes of gold are currently seen as of less impact. As a consequence there is the definite possibility that the gold price, which remains very much an indicator of dollar strength, could still drift back further while these perceptions continue and this scenario would now seem likely to remain in place through the holiday season.

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