Investors in gold have been having a nerve wracking ride of late with several false dawns promising a return to the high $900s - and even bringing out predictions from some analysts of a rapid return to the $1,000 level seen earlier in the year.  But, with the US dollar showing signs of strength and oil moving up and down as well, gold has tended to follow the direction suggested by the strengths and weaknesses of these other key influences, rather than plough its own furrow on fundamentals alone.

Gold is primarily looked at by the broader investment market, rather than by the strong gold bug element, as providing a hedge against inflation and against major political turmoil and unrest.  Recent statements by Ben Bernanke, the Chairman of Governors of the US Federal Reserve, have suggested that inflation could be becoming a problem and has hinted that the recent spate of cuts in US interest rates to help stimulate the economy may be at an end, and that interest rate rises may be on the horizon to clamp down on inflation due to higher food and commodity prices - not least oil.

This, in turn, has seen a strengthening of the value of the dollar against other currencies (although not a very certain one as occasional bouts of poor economic data tend to reverse the perceived sentiment) and at times when the dollar strengthens and oil falls back from its peaks, the gold price tends downwards.

That is undoubtedly what has occurred over the past few days with a briefly weak dollar and surging oil pulling gold back above the $900 level, only to see it tumble back to the $860s this morning amid fears that it could fall even lower.

But, consider the inflation scenario.  The high food, metal commodity and oil prices are filtering through and it is not only the US which may be considering interest rate rises to try and combat inflationary trends, but also the European Central Bank and the Bank of England among others, which have also intimated they may be set on the interest rate rise route.  This may mean, should this all come about, that the relative strength of the US dollar engendered by an interest rate increase in the US may be negated by similar, or bigger, interest rate rises elsewhere.

Be that as it may, there are still some fairly serious political tensions in the Middle East, the gold price is getting to a level where jewellery gold purchases may start rising again, world mine supply may well fall again this year, the US economy is still close to recession, inflation is beginning to strike hard in countries like China.  All these should be pointers to gold price strength in the medium term.

As we have pointed out here before, investment interest in gold by the greater investment community is very much based on economic perceptions.  The past week has seen the pessimists on the economic front take a breather perhaps, but it wouldn't take much in the way of adverse news to bring the doomsayers back and the gold price could then yo yo back up again as fast and as far as it has come down.

The northern hemisphere summer is here.  Activity in the markets which drives stock and commodity prices is traditionally at a lower level at this time of year, but come August returning analysts, fund managers and individual investors will be taking a hard look at what they see ahead for the rest of the year and unless the economic situation has shown further improvement, which at this time looks to be increasingly unlikely, the factors which have driven the gold price upwards over the past few years could be back in force again.

Analysts specialising in the gold market seem almost unanimous that the second half of the year will see a rising gold price trend again (although there are some notable exceptions).  In the meantime the downside risk is probably limited - but is certainly there - and probably the majority of gold investors will be hanging in for better times ahead.  Analysts see good downside resistance in the $850s and $860s.  Watch the US indicators.  They, and the dollar, and oil, look to continue to set the gold price trend in the immediate future.