Currency Factor Impacting Gold Prices: IMF
Source: Commodity Online (11/2/09)
". . .expect heightened volatility over the next two months."
On Friday, IMF said there were encouraging signs of an economic recovery in the U.S. and several European economies. However, it warned that government stimulus should remain in place until unemployment peaks, which may be 10–12 months away.
The U.S. dollar that went on a depreciating spree reversed direction last week. It is unclear if it is sustainable. Currency factor is increasingly seen impacting commodities in general and gold prices in particular.
Last week saw profit-taking in the yellow metal following the dollar gaining strength and weak equity markets. Prices dipped below $1,030 an ounce during the week, only to bounce back towards the weekend.
In London on Friday, gold PM Fix was at $1,040/oz, virtually unchanged from previous day's $1,040.50/oz. Silver defied the trend. On Friday the AM Fix was at $16.57/oz, up from $16.33/oz the previous day.
Going forward, further profit taking in gold looks likely, especially if the dollar strengthens. However, a strong technical picture and widespread expectation that the dollar would weaken can buoy prices. Experts are now asserting gold's newfound broad appeal for investors and are revising their price forecast for Q1 and Q2 of 2010 upwards.
Although the recovery signals are turning increasingly pro-growth, there still are uncertainties along the road. Until a clearer picture generating confidence that recovery would be sustained emerges, commodity prices—especially energy and metals—will remain sensitive to data flows. In other words, expect heightened volatility over the next two months.