A Rough Start on the Gold Price This Week - Are the Bulls Still Running?

Any investors paying close attention to this week’s gold prices noted that, along with the Dow Jones Industrial Average, gold prices were down a bit on Monday. Even this morning, as the Dow has increased around as much as a percentage point, the price of gold saw a skittish start, hovering at about its closing price from yesterday, and perhaps even a bit lower. So is it time to call off the bulls, or is this just a temporary state of affairs for the price of gold?

According to Peter Krauth, speaking to Money Morning, gold being unable to break the psychological barrier of $1,300 an ounce may not be enough reason to abandon your hopes for gold. According to Money Morning, gold’s prices were down on Monday, not because it’s a bad investment, but because of the following variables:

• The US Dollar Index was higher on Monday, and frequent gold bugs will remember that a strong dollar often translates to a weaker ounce of gold, and vice versa.

• Higher oil prices took some attention off of gold as well. This isn’t an everyday occurrence, but can sometimes have an effect.

• Investors who made a quick buck on gold’s gains from last week might be “cashing out” for the moment, especially with the dollar as high as it is.

Of course, not every investor in gold is there to day trade. Many gold investors invest for the long term, looking for gold prices to go up over periods of 10, 20, and even 30 years or more. But there are others who buy gold, not for day trading, but still believing that it might be a good short-term investment. Is it? Is this Monday just a blip on gold’s ascent to $1,400 an ounce and beyond, or has gold hit a short-term ceiling?

Don’t Forget About The Strong US Dollar

Of all the points listed above, perhaps the best explanation for the current price of gold is the strength of the US dollar. At Platts.com, Monday’s prices were explained thusly, “A firmer US dollar set the tone for a weaker gold price on Monday, after bullion was given a boost last week by weaker-than-expected employment data from the US.”

If you’re going to view gold as a hedge against poor economic news, it only follows that a strong dollar and an absence of poor recent economic releases is going to keep gold down, at least for the time being. With the dollar index, according to Platts.com, up to its highest since April 28^th, a lower-than-usual gold price is to be expected.

But what about the future? Keep an eye on the dollar index on a regular basis, particularly when you see big moves in the price of gold and silver. If very little about the gold market has changed, and the price can be explained by a change in the US dollar, it may not be time to give up your optimism on the yellow metal just yet. We’ll see what this week has in store for gold to get an eye on any developing trends.