Gold prices are trading on a firm note, modestly below their recent all-time high of $1424.30 an ounce (nearest-futures Dec contract).
Bullish factors include:
- Heightened concern over contagion of the European sovereign-debt crisis after credit-default swaps insuring Italian, Portuguese and Spanish government bonds all rose to record highs.
- Continued demand for gold as confidence in the Fed remains low and concerns remain high for an eventual inflation outbreak.
Bearish factors include:
- The rebound in the dollar index to a 2-1/2 month high.
- Slack inflation pressures which cut demand for gold as an inflation hedge saw a record low of +0.6% y/y for the October core CPI.
- Vulnerability to long liquidation pressure with hedge funds holding a record amount of gold.
Fundamental Outlook - Bull market correction - Gold prices firmed on European debt concerns despite a stronger dollar. Gold may see some weakness if the dollar strengthens further, but the long-term picture remains bearish for the dollar and bullish for gold as the Fed potentially is stuck with its QE2 program at least through June 2011.