The dollar's downside reversal supports precious metals

Throughout last week, gold managed to record a new historical high of $1070.83 per ounce, yet it retreated later in the week due to a number of factors; the first affecting factor was profit-taking by investors after gold's surge. The second was the dollar’s rebound, as the dollar index which measures its strength against major currencies, rose on Friday; causing gold's depreciation.

During Friday's trading session, gold advanced slightly compared to what it had seen throughout the previous days, it managed to record its highest at $1056.87 per ounce and the low of $1042.73 per ounce; meanwhile ending trading at $1052.16 per ounce. At the same time, the dollar index also rose on Friday, opening at 75.41 and achieving its highest at 75.89, while closing at 75.60.

Meanwhile, important fundamentals were released last week; pointing out that the global economic recovery requires more time, thus causing investors to head towards gold as a hedge against uncertainty. Gold today started its week with a slight rise for; where as of 03:02 EST today, it reached $1055.20 per ounce rising by 0.23%; silver also managed to rise, since it is considered to be the second safest metal after gold, recording a rise by 0.46% to reach $17.50 per ounce at 03:02 EST.

In addition, there are forces that have contributed in pushing gold to ascend throughout today's trading session; one being the dollar’s downside reversal, as the index opened at 75.70 and recording its lowest at 75.46, where it currently returned to trade around 75.55. This caused investors to head towards gold as a hedge against the dollar’s receding purchasing power.

We expect gold to continue to rise over the medium term due to the global economy's blurry future, despite the release of a number of fundamentals indicating that the economy is entering recovery. However, we cannot deny that it is still currently facing many challenges, where the most obvious one is the rise in unemployment levels. Consequently, these major challenges make us expect that the economy needs more time to show a clear recovery and stability.

Several governments were forced to use a number of unorthodox policies to support their economy and fight deflationary pressures; central banks slashed their benchmark interest rates to historical lows also in hopes to salvage the economy. Those easing measures undertaken by central banks and governments to increase liquidity to stimulate the economy and also prevent deflations is feared to have an opposite outcome over the longer term and inflate inflationary pressures which is added further support for precious metals over the longer term as the key hedge against rising inflationary threats.

The recession has led many global economic sectors to contract, especially the industrial sector, yet the sector now tends to stabilize while showing some optimistic signs of it nearing recovery. This led to some fluctuations in platinum, which is considered to be the most vital metals for the industry; where after it ended Friday's session at $1342.00 per ounce plummeting by 0.52%, it managed to rise today by 0.22% reaching $1345.00 per ounce at 03:28 EST.

The dollar’s drop alongside prevailing optimism in markets led a rally in crude prices, where it had reached its highest in nearly a year today around $79.00. As for future commodity indices, they inclined on Friday as well; where the S&P GSCI index rose by 5.01 to 508.20; the RJ / CRB COMODITY index also rose by 2.38 to 276.10.