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8 Dec, 2009 08:19

Gold price takes hit as greenback firms

Strong jobs data in the United States, leading to a rebound in the greenback has seen the gold price pulled back as much as $80 an ounce after powering beyond the 1200 an ounce mark last week.

After a month of successive all time highs, gold succumbed to a sell off driven by better than expected US employment data, which pushed the U.S. dollar higher.

The rally came as doubts about the dollar and the liquidity and economic stimulus needs of the US economy had driven investor concern. It had pushed the gold price from between $900 and $950 where it spent most of this year, as global central banks had indicated they had turned from being long time sellers of the oldest store of wealth, to buyers. After clearing the previous all time high of announcements of big gold purchases by the bank of India, and speculation other central banks, including Russia and China, are looking to buy, or are buying domestically. Vladimir Osakovsky, development strategist at Unicredit Securities, believes gold is likely to go higher as long as the economic stimulus measures remain in place.

"This big rally in gold is clearly driven by this big money printing in the developed countries and US in particular. This rally will last as long as money is being printed. If they will stopped printing money this rally can easily reverse."

The start of this week has seen it fall from $1220 an ounce to as low as $1130 before bargain hunters stepped back in and the dollar began to ease again in late Monday trade. Many are still predicting it to go as high as $1300 an ounce before the new year on the back of jewelry demand in the holiday shopping season. Jewelry demand has tailed off as the gold price has spiked during the year. Dmitry Baranov, Senior expert, at Finam management, says there is little likelihood of gold appreciably weakening until investors feel confident enough about an economic rebound to put their money elsewhere.

“There might be a correction after Christmas with prices going back to 1200 dollars, then the price is likely to stay within the 1100 to 1300 corridor for the next 3 months when the revival in the global economy may lead investors to sell gold to put money into the new projects.”

Recent comments from the U.S. Federal reserve suggest interest rates there will remain low for the foreseeable future. Also, governments of major economies have all pledged not to end economic stimulus packages early. This means more dollars will be piled into the global economy – And will keep interest in the yellow metal high.