Where is the Gold Market Heading? by Daniel Jones
in Finance / Banking (submitted 2011-01-07)
The two month highs of the US dollar have weighed on the price of gold. Despite the fact that gold prices usually rally in times of economic uncertainty, such as the European debt crisis that is currently weighing on the markets, the price of the dollar is effecting gold's position as a currency alternative.
Gold also usually acts as a safe haven during politically unstable times. However, even the geopolitical tensions surrounding North and South Korea have not buoyed the gold market.
Analysts have suggested that this may be largely to do with the US dollar's strength. However the prospects of a Chinese interest rate hike are also limiting gold's ability to exploit its position as a safe haven from the European debt crisis and Korean tensions.
Many investors will be concerned that interest rate hikes will dampen rising Chinese inflation and that could severely reduce the demand for gold and a range of other commodities. China is the biggest consumer of base metals and, after India, the world's second largest consumer of gold.
So where next for the yellow metal? According to a recent report from Financial Spreads, "Gold has been suffering from the strength of the US dollar. Normally it's the gold market that benefits when the stock markets are looking so uncertain but that's not currently the case.
"Having said that, it seems to be the case that with the precious metals spread betting markets, standing in the way of a nine year bull market, which has admittedly seen occasional sell offs, would be to be a good way to get hurt."
Elsewhere, a City Index report stated, "With the gold market, the 'Parabolic Indicator' still looks bearish and the 'Momentum Index' isn't particularly bullish. If weakness continues, the lower target of $1,246 might still be in sight for the bears. A concerted move below $1,350 would confirm this scenario.
"However, should the upward momentum be regained then the metal could well move towards $1,520 during the final month of the year."
If you are looking to speculate on gold then one of the easiest ways to access the market is through spread betting, where you can both buy and sell the price of gold.
The Financial Services Authority regulates the UK based spread betting companies and this tends to ensure a certain level of customer protection.
Note that a number of companies offer the usual benefits of letting you trade outside normal market hours as well as offering thousands of world markets. Some firms such as FinancialSpreads.com offer 24 hour trading, Sunday night to Friday night, on key markets like Gold, Crude Oil, the FTSE 100 and DAX 30.
Before you trade though be aware that with spread bets you can lose more than your original stake or investment. Familiarise yourself with the risks involved. Spread bets do carry a high level of risk to your capital. Before trading, please ensure that spread betting matches your investment objectives. If necessary, seek independent advice.
