The gold price is already showing signs of volatility in the New Year with the price rising strongly at the close of 2008 and the first couple of days of 2009, and then falling back fairly sharply. We seem to be looking at gold as usual as a play on the strength of the U.S. dollar against other currencies and to predict the gold price movement this year and beyond will probably be, in reality, largely an exercise in predicting how the dollar will fare.

Where the dollar is going in the short to medium term is not easy to predict. Currently, it is showing some strength against other currencies, however unjustified this may seem to be for a dispassionate observer. But the truth is that, although the dollar should be weak given all the additional money being pumped into the U.S. economy (which has to be inflationary in the long term), then so are most 'competitor' currencies.

Nevertheless, once other economies start to stabilize and realize the weakness of the U.S. economy's position with its huge deficit, the dollar could be in for a major tumble. This would likely push commodities in general, and gold and oil in particular, to big premiums in U.S. dollar terms, if not necessarily in other currencies. What may, ultimately, give the gold price the major boost that some economists expect will be a wholesale dumping of U.S. assets by investors around the world as they lose patience with the U.S. economy.

Gold will be the likely beneficiary as the other traditional safe haven, and the faster the dollar falls—the steeper the rise in gold price, in dollar terms at least. In other words, gold will ultimately win the battle of the safe havens, but this may yet take a fair amount of time to materialize.