The price of gold dropped $28.70 yesterday closing, at $1106.80 on the New York Mercantile Exchange. Gold steadily dropped off during the day when investors sought after the dollar as United States currency becomes more appealing. The dollar index DYX reached a 3 month high yesterday. The dollar index measures the strength of United States currency against a basket of 6 other currencies from around the world.
Why is the price of gold dropping off? The answer is because the dollar is gaining strength. Recent news has cause the dollar to execute an about-face. Two weeks ago the department of labor announced that unemployment figures for the month of November were lower than expected. One week later we learned from the consumer department that retail sales were significantly higher than expected. The news signaled that the United States economy is on a rebound. At the same time Greece’s credit rating was downgraded having an effect on the Euro.
On Wednesday we heard from the Federal Reserve who indicated that interest rates should remain near 0% going into the New Year. The Feds also mentioned that some special programs to support the financial systems are going to be cut off at the beginning of the New Year because they are no longer needed. This statement caused world stock to drop nearly 2% yesterday.
With the United States economy showing signs of improvement and the Euro taking a hit, we will most likely see the dollar index rise. As the dollar index rises the price of gold will continue to suffer. Gold and the dollar have an inverse relationship, meaning that when one increases the other decreases.
Check back with Healthy Financial Habits every Monday morning for your weekly gold price predictions. Here you will find current news, information and investment strategies that will assist you in making financial decisions. It is important to remember that consulting with a quality financial adviser is always recommended prior to making personal financial decisions.
Author: Mike Smitt