Analysts Predict Up To 20 Percent Rally For The US Dollar: Time To Short Gold?

The US Dollar may be up five percent following the release of a strong Jobs Data last week, but according to analysts from HSBC, the dollar has a lot of room to run and a 20 percent rally appears well within reach. "The current U.S. dollar rally is unlike any we have seen before...[the rally] so far has only been roughly 5 percent yet history shows a 20 percent rise would not be implausible," the analysts said.

This sparks bad news for Gold bullion whose price is inversely tied to the US dollar. In fact, sign of a faddish gold valuation is already beginning to emerge after the yellow metal's price fell to a new fifteen-month low of $1,183/oz in the early trading hours on Monday, Oct 6.

However, as the trading activity developed during the day, gold recovered significantly to trade above the $1,200 mark. Nonetheless, this recovery might have mainly been because of selling pressure early in the day. Technical traders would have noticed the undeserved selloff and moved quickly to capitalize on the “undeserved low prices”.

Nonetheless, despite Gold’s late surge, some analysts are actually predicting that it could drop to as low as $850/oz. That would be the lowest price for gold in more than six years. With a prediction of hitting a low of $850, this suggests that it might be the right time to take a short position on Gold.

However, anyone who has done some back testing studies would be able to apply the same on Gold and it would be clear that those holding long positions on the yellow metal have always won, in the end. Gold has always recovered from just about any pressure over the last fourteen years, and based on today’s late price levels, it is clear that the yellow metal could be set for another recovery. However, the bottom line is that despite the recent turn of events, the yellow metal appears under significant amount of pressure, when actually it should be witnessing increased interest from investors.

This comes at a time when some investors would have thought that gold was a safe haven especially considering the current geopolitical uncertainties in Eastern Europe and Middle East. The tension in Russia, which appears set to affect the global markets for a while shows no signs of ending. Under normal circumstances, this is usually good news for gold price as it offers safe haven for investors during such unstable conditions.

Furthermore, Middle East has had its fair share of tensions including the events ongoing at Gaza and the overall political situation in Syria. The U.S has been involved significantly in the events in the Middle East. However, such involvement does not seem to affect the U.S dollar, as investors remain positive on the U.S economy.

On the contrary, the yellow metal has been hit badly over the recent past with its price falling below the $1,200 mark for the first time in 2014, last week.

Conclusion

Gold price appears to be experiencing its biggest decline in history. However, this could be due to the rapid rally that saw it rise from $740/oz to $1,788/oz, between November 2008 and November 2011. Therefore, the yellow metal might, despite all the pressure it is getting from a recovering U.S economy, be experiencing a price correction.

Nonetheless, a closer look would suggest that the current price level of about $1,200/oz could just be the right one for the moment with only an advance likely from here on.