Gold Gives Way to Recovering Dollar
Written by admin on May 1st, 2008 in Commodities, Currencies, US economy.
This week Gold slumped to a three month low to $850 an ounce after the US dollar continued to show further signs of recovery against the Euro after increasing optimism that the worst of the global credit crisis is over.
The yellow mental that has seen record highs in recent months has slumped by $25 since reaching $881.65 overnight. This overnight high was brought as a result of a temporary stalling of the dollars resurgence after the FED made a further interest rate cut.
Since the FEDs rate cut the US economy has been filled with an air of cautious optimism that the worst of the financial crisis has been weathered, helping push the dollar upwards. As a result the price of gold has seen a steady decline as its appeal to an alternative to the greenback has been diminished.
“The pace of decline, suggests gold will remain at risk to further corrections in the coming sessions, potentially testing below the psychological $850 an ounce mark before finding sufficient demand from bargain hunters and the physical sector.” - James Moore at TheBullionDesk.com
Although many had predicted a .25% rate cut by the FED to 2.0%, many were surprised by statements suggesting that further cuts could follow, weakening the dollar. US interest rates have now fallen from 5.25% since September 2007.
On Thursday however core inflation was higher than expected which many expect will halt any further rate cuts planned by the FED.
The resulting rise in confidence in US markets has seen an increase in the appetite for risk, which has further pressured gold, with investors redirecting money ploughed into commodities at the start of the year back into equities. A trend much expected with gold’s reputation as a safe store for wealth in times of economic uncertainty.
