Gold prices corrected downward to a four-week low from their recent all-time nearest-futures (October) high of $1,920.80 an ounce. Bearish factors include:
- The surge in the U.S. Dollar Index to a 7-1/4 month high.
- Long liquidation pressures as commodity markets tumbled.
Supporting record high gold prices are:
- Strong demand for gold as an alternative asset after the recent cuts in the credit ratings of the United States, Italy and Japan.
- Safe-haven demand from the European debt crisis.
- The Fed’s pledge to keep interest rates “exceptionally low” through at least 2013, which lifts inflation expectations and boosts gold demand as an inflation hedge.
- Rising global price pressures with U.S. August CPI at a 2-3/4 year high of +3.8% y/y and China July CPI at a 3-year high of +6.5% y/y.
Fundamental outlook — Bull market correction — The long-term trend for gold remains bullish, but the short-term trend is bearish on long liquidation pressure and the dollar’s rally. Supportive factors for gold continue to include safe-haven from Europe’s debt crisis, an alternative to flagging stock prices, and extraordinarily easy G7 monetary policies.
Have a prosperous trading week.
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