Ambitious predictions for gold price

The US Federal Reserve’s decision to reduce interest rates by one half of one percent created another decline in the strength of the dollar mid-week, leaving it at a 15-year low against a number currencies.

A weak dollar usually supports gold prices and not unexpectedly the metal is currently trading above $720.

The price has sparked ambitious predictions for gold; the $700 mark proved to be a psychological barrier and the same could apply to $730.

The current rise has added weight to forecasts that gold might exceed the high reached in May 2006 before the end of the year, and many analysts anticipate that $800 is possible.

Those in disagreement are expecting a correction in the gold price, which they see as having risen too fast, but they are outweighed in number by analysts expecting further gains before the price stabilises.

In addition, the enthusiasm for gold is beginning to spill over into gold stock prices which have been depressed recently because of operating cost problems.

Those watching the dollar are warning that the gold price often falls as quickly as it has risen.

They are waiting to see how the dollar recovers from its latest low, but even if the fall has been overdone, few expect any real medium or long term strength in the US currency.

If this is correct, the pattern of continuing dollar weakness will enhance the strength of gold.