The precious metal retreated after hitting a high of $886.85 in early 2009's thin trading as oil stopped Wednesday's rally. The relationship between gold and oil was very high especially in the last weeks of 2008. On the other hand, the U.S. dollar strengthened against majors reducing the gold's appeal as a hedge against the falling dollar. However, grim U.S. data and bad outlook could ignite fears and give gold some safe-haven allure.

Crude oil unexpectedly jumped 14% on Wednesday but today it slipped more than $2 dollars as traders considered Wednesday's gain too excessive. The black gold climbed 14% as the EIA report came better than projections was offset by fears of supply disruptions heightened due to the Israeli continuing attacks to Gaza. Nevertheless, decline in the global demand on oil due to the undergoing recession lowered prices. Oil dropped 4% at the beginning of the New Year after losing more than 54% within 2008. Up till now, oil prices recorded a high of $43.72 a barrel and a low of $42.28 a barrel resulting in a shed of $2.17 a barrel. Thus, oil's plunge lowered the demand on gold as a hedge against inflation.

The U.S. dollar strengthened against majors continuing last week's incline. The 15-nation currency fell against the dollar with investors' eye on today's manufacturing report that will probably suggest that the slowdown may continue or deepen in 2009. In addition, expected interest rate cuts by the ECB and BOE to revive the economy decreased the demand on the euro and the pound. Therefore, the strengthening greenback declined the demand on the yellow metal as a safe haven against the weak dollar.