Gold’s recent dip to a 6-year low of US$330 per oz. was largely a function of a strengthening of the U.S. dollar relative to other currencies, some analysts say.
“In U.S. dollar terms it got pushed to the critical stop-loss order level,” said Felix Freeman
of Burns Fry. “There was distress selling from a number of sources.” The gold price has recovered somewhat to the US$335 level but most analysts are shunning bullish stances, at least for the near term.
“It’s pretty much a dead-cat bounce,” says David James
of Richardson Greenshields. “There’s very little vigor in the market.” James says the sharp decline in the Australian dollar relative to the U.S. dollar means an Australian producer can meet a A$480 hedging level at a U.S. price of only $335. Forward selling tends to put a cap on the gold price.
“It now appears that even US$350 may not necessarily be the magic threshold level for hedging much longer.” He says threshold levels in South Africa, where hedging practices are just beginning to catch on, must also be watched carefully.
Low inflation, central bank selling and high relative interest rates in Europe are also cited as reasons for the sluggish gold market.
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