Gold prices dropped yesterday amid a surprising shock in the market caused by the Feds arrangement to pump cash worth $200 billion to ease the current credit crunch crisis. Gold today inclined a little to fetch a high of $975.00 an ounce and it is obvious that the present downward movement is but a correction in an ongoing rally that will shortly be over and gold remains alive.
Gold is essentially a game of supply and demand and it's not easy to predict the demand and supply scenario because of the multiple factors affecting it whether it's national or international or both. But if one were to look at the currency outlook that is the recent factors such as the volatility in the equity markets worldwide, concerns of the US recession, inflationary pressures due to high oil prices and finally the weakening dollar, one will know that the interest in gold will continue to generate and thus the hike in gold prices shall prolong.
Oil prices dropped today slightly to record a low of $108.23 a barrel following yesterday's Feds arrangement to pump $200 billion to provide assistance in the credit crunch crisis. However, with the persistent problems in the US economy, oil prices are seen to hike furthermore boosted by investors' flows into the oil market.
The weak dollar has played a role in the latest surge in commodity prices and though the dollar bounced back sharply yesterday against its major counterparts, the general outlook for the dollar is still to the downside and this year it has weakened statistically speaking 4.9% against the European common currency and 8.7% against the Japanese yen which in hand supports the surge in gold prices.
When the dollar weakens, dollar backed commodities such as the precious metal effectively becomes cheaper for buyers holding other currencies which spur its demand. As the same time producers are motivated to boost prices of these commodities since they are getting paid in a less valuable dollar.
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