Gold Slightly Down Despite U.S. Dollar

As reported by a Bloomberg story, gold dropped slightly overnight. The reason given was speculation that the U.S. dollar will appreciate. However, the U.S. dollar itself is beginning to slump. That pullback has been attributed to profit-taking, and to strength in the stock market.

A Reuters report gives a different take. It presents the recent strength of the greenback as the result of a short squeeze.

There is also an indication that excessive long positions in gold futures have somewhat been cleared while many dollar short positions have also been covered, paving the way for gold to test new highs early in 2010, said Koichiro Kamei, managing director at financial research firm Market Strategy Institute.

"The dollar's recent firmness was partly due to the covering of excessive short dollar positions, and that adjustments seem to be coming to an end," he said.

"Gold's correction may also be over, and talk of central bank buying will again be the main driver for gold to rally. News of fresh central bank buying would likely trigger a rally to new record high prices for bullion," Kamei said.

The U.S. dollar is still the main driver of gold as of now. A blip-up in the U.S. Dollar index triggered a 12-dollar/oz sell-off, from which the gold market partially recovered in afternoon trading. As I write this post, spot gold's largely unchanged at $1,104.70.