Tuesday, December 11, 2007

The Future of Gold

Gold prices around the world are having a slightly bumpy but steady road to higher values.

A recent slight drop, due in part to a fed rate cut in the US is only a pause in the general trend up. The rate cut by 25 basis points to 4.25%, will temporarily bolster the flagging dollar for a period but will not affect the value of gold in the long term.

Charles Nedoss, a gold analyst at the Peak Trading Group in Chicago, commented that the short-covering in the dollar right after the Fed decision led traders to lock in gains in the precious metal.

"With the recent strength in gold, you're seeing a little bit of profit-taking," Nedoss said. "Going forward, however, gold is supported by strong fundamentals," he continued. "Technically, we're holding onto levels that we need to."

"Traders were looking for a larger cut of the fed funds rate or at least a 50 basis points discount rate cut," said Kathy Lien, chief strategist at DailyFX.com. "Stocks are down sharply, carry trades have plummeted and the U.S. dollar has strengthened across the board."

However with the weaker dollar and higher debt this cannot be sustained and despite overseas shoring up of the dollar we can expect a further decline in the coming months.

Meanwhile, a report recently issued by Bloomberg earlier this week indicated that demand for gold jewellery in China could increase 20 per cent by the end of the year, which would make China the world's second-largest gold consumer.

In addition figures released by Commodity Online found that consumption of both gems and gold in India increased by 11 per cent on the five-year period ending in 2007.

Around 80 per cent of India's jewellery market is based on gold, with the country representing around 20 per cent of the world's gold consumption.

So as far as the gold price is concerned, it is likely that we can expect a fall after the holiday season and a fairly quiet January period, but then the rise is likely to resume again with some experts predicting a new plateau of 900-1000 US dollars per ounce in the new year.

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