Gold price will fluctuate with the dollar and it isn’t always an inverse relationship. Sometimes gold and the dollar will appreciate together and it is usually when there is a mass exodus from risk. The market is perceiving the risk is shifting from default risk to inflation of the dollar. The risk is the depreciating value of dollar holdings. The natural solution or focal point the market will select to preserve capital will be gold. Gold will act in an inverse manner to the dollar under these conditions.
by Trader Dan
Since the late spring of last year, the US Dollar has been the recipient of a fair amount of “safe haven” flows, mainly in response to the woes afflicting Europe and by consequence, the Euro. We have said repeatedly that the US Dollar rally was not based on any desire to own the Dollar out of bullish economic fundamentals but rather out of fears concerning the viability of the Euro.What this translates to is that any news or developments that seem to lessen the severity of the European sovereign debt situation, whether through concerted Central Bank action or from any other front, will send money flowing right back out of the Dollar and back into the Euro. Note that the last two weeks, particularly this week after the FOMC just cut the legs out from under the Dollar for as far out as the eye can see ( 2 years), the Dollar has seen very heavy selling which has confirmed the level near 82 as significant chart resistance. The Dollar failed here last week and has not as of yet been able to regain its footing.
When you couple the FOMC statement this week with today’s release of the abysmal 1.7% US GDP reading for 2011, is it any wonder that the Dollar is sinking like a lead brick.
If it fails to bounce here near 79, it looks like it has a clear shot back down towards 77.
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