The US Dollar tried but failed to penetrate its resistance of '80' resulting in a fall back and a spike in gold prices. The technical indicators reflected just how over bought the USD was, however it came very close to forcing the breach and then it could have gone on a bit of a run.
It certainly is a bit of a roller coaster ride in gold at the moment, but in the present climate many other markets are in the same boat. Gold prices are experiencing a great deal of volatility, mirroring the volatility of the financial markets at present, but has gained over $150 in the past week or so, which indicates the true scale of the current financial crisis.
Gold rises in times of significant economic concern, such as during the 1970's inflation, and so gold is telling investors what the US government is not; this crisis is very serious and will not be going away anytime soon.
As for when this crisis in the markets will end, will think it will take a good year from now for the majority of troubles to be shaken out.
There is a possibility that we will see an all out "crash" in the stock market, similar in severity to that of 1929. If this is the case, which despite being gold bugs we hope it is not, then gold prices will shoot back up to $1000 and beyond very fast.
However we think a more likely scenario is that the mainstream market will continue to suffer, gradually falling apart. More bailouts by the Fed will increase the money supply, devaluing the US dollar even more and pushing gold to new all time highs by the end of this year.
Inflation is likely to continue to become a major issue, particularly as the Federal Reserve has pumped around a trillion dollars into the US markets, rapidly expanding the money supply. This expansion of the money supply will lead to high inflation, and this is where gold comes into play as a hedge against such dangers.
Gold has spiked up tremendously recently, so of course some cooling in the yellow metal is due. We expect it to consolidate around $850, bearing in mind it will be very volatile, before forming a base and challenging its all time high before the end of the year.
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