Gold set to continue rising

Having breached a psychological barrier last Thursday and Friday, the gold price has begun this week above $750 oz in Asia and Europe, where it has also surpassed a 28 year high of $760 oz.

Analysts are predicting a return of the record breaking prices of the 1980 within a few months but investors are still studying the market carefully for indicators of a rise or fall in the gold price.

European and Chinese financial institutions are voicing concerns that the dollar has dropped too low and that this will reduce exports to the US.

Other currencies could respond by devaluing, but a recovery of the dollar on this basis is likely to be temporary.

However, in today’s turbulent markets the gold price is likely to fall if the dollar strengthens, even in the short-term.

According to Martin Feldstein, a well-regarded US economist, “The dollar has finally begun its long overdue correction. The dollar’s decline in recent weeks is just a prelude to the much more substantial fall needed to shrink the US current account deficit, running at a nearly $800 billion annual rate, about 6% of gross domestic product.”

It is rumoured that Mr Feldstein is putting forward views held within the US Government and if so, the strong dollar will not reappear for some time.

A controlled decline in the dollar, which is what any government would aim for, is difficult to achieve and a rapid reduction in the currency’s value is likely to benefit gold investors.

With nothing to suggest the emergence of a period of dollar strength and putting aside the possibility of Central Bank intervention, the gold price looks set to rise.