A plethora of views forwarded by numerous counters has kept investors in a quandary of whether gold has peaked or whether the recent fall is just a healthy correction.
Well it may be too premature to claim that the best place for gold is outside your portfolio, but one thing is for sure: the commodity has cracked open - tumbling by 5.4 percent to $1146 per ounce from all-time peak of $1212 per ounce hit on the second day of this month - and will likely remain weak at least for some time.
The reason is in the obvious. With U.S job data getting relatively better - unemployment level dropped to 10 percent in November from 10.2 percent in October, according to U.S Bureau Labor Statistics - confidence has sneaked back into the U.S economy. Hence, the talks of recovery in U.S dollar.
Although, many are still bearish on the long term outlook, many believe that downward pressure on U.S dollar is likely to remain low in the next two years, because the negative domino affect caused by housing bubble is likely to reverse gradually, as real estate sales, corporate profits and unemployment data are showing signs of improvement.
In its World Economic Outlook released in October, the International Monetary Fund raised its U.S economic growth forecast to 1.5 percent in 2010 from its July forecast for 0.8 percent growth - a view shared by economists at the U.S Federal Reserves who believe that although the economy is weak, it has ticked up from it lowest point with early stages of recovery awaiting ahead.
Even technical analysts - who study price charts to make forecasts - have become bullish on the greenback.
Mary Ann Bartels at Bank of America Corp - ranked second among technical analysts in Institutional Investor magazines 2009 survey - said on Wednesday "the U.S. dollar is bottoming" adding thats its a grossly oversold asset.
Bartels views echoed in a recently released weekly currency review by AKD securities, which noted that the US currency has entered in a high probability pullback zone looking set for rebound over the next two years. "For investors with the time horizon beyond the immediate term, it appears that the ailing currency is setting up for a move towards a minimum target of 99.50~100.35 and a maximum of 106.25~110 over the next 24 months," the report said on dollar index.
While the consensus view is bearish for gold, forecasts differ about the exact downside. HSBC forecasts 2010 gold prices to be near $1,150 an ounce and an average $975 an ounce in 2011, while Bank of America predicts the yellow metal prices to edge near $1,110 in 2010. Goldman Sachs, however, is still bullish and sees gold at an average $1,265 an ounce in 2010 and $1,425 in 2011.
But whatever the medium term view might be; the fate of US economy in the medium to long term remains highly unpredictable as the world growth engine has shifted from west to developing countries in the east - implying the dollar would eventually remain weak in the long run and gold up. How exactly will the dice play out itself, remains to be seen.
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