Gold Prices Volatile but Sentiment Remains Strong

Summary: Why gold is currently volatile but how it is likely to make a solid long-term investment ahead of recession fears

Dollar gains after the U.S. Senate’s approval of the revised $700 billion bail out plan sent gold futures down by 4.8% on Thursday.  A rising dollar pressures gold prices as it reduces the metal’s appeal as an investment alternative; however, general sentiment for gold remains extremely bullish.

Many analysts suggest that the long-term implications for the bail out plan will have an extremely negative effect on dollar prices, creating a bullish gold market that tends to be the inverse of the dollar market.

Connecticut-based MF Global Ltd., analyst Edward Meir said: “gold is still perceived as a safe refuge, and perhaps markets are discounting a bailout, which could denigrate the value of the dollar longer-term.”

Circumstances don’t look any rosier in Europe where the European Central Bank, which traditionally puts inflation control before economic growth, left the lending rate unchanged at 4.25 percent despite a rapidly deteriorating economic outlook and continuing turmoil in the Eurozone banking sector.

Few analysts remain confident that the US will avoid moving into full blown recession, and many more European countries are expected to move into recession over the coming months, with Ireland already firmly in the grips of a recession and Germany, Britain and Spain expected to follow soon.

Analysts suggest that without strong evidence of recovery in any primary currency, a bullish gold market will continue as more investors demand stability and a secure haven for their wealth for the longer term.

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