Monday, May 14, 2012

Gold Prices Fall on Stronger Dollar

A temporarily strengthening U.S. dollar continues to put pressure on gold prices, as investors pour money into the greenback based upon perceived safety.

This of course isn't a nod towards a really strong dollar, but rather the consequences of an falling euro in response to the endless sovereign debt crisis in Europe, as well as the volatile political climate.

Gold prices will continue to fall, as they usually do, as long as the U.S. dollar gets stronger against the euro. As soon as that changes it will reverse, and gold prices will resume their climb.

Until that happens, we could see gold prices drop to December lows of close to $1,520, and from there, if the euro remains weak, gold could fall below the $1,500 an ounce mark.

The U.S. dollar climbed against a basket of major currencies while the euro dropped to a four-month low against the dollar.

Also pressuring gold is the unwinding of bullish positions in the metal by money managers, who have slashed their long positions by about 20 percent. That brings holdings in gold futures by the money managers to the lowest level since the latter part of 2008.

Since the fundamentals accompanying the rise in gold prices remain in place, it's only a matter of a relatively short time before prices start to climb again.

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