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Gold investment has been steady, yet unspectacular recently, as traders monitor the dollar’s gains before pushing more heavily into the precious metal. Gold, after two consecutive months of declining prices, appears to have found its bottom, leading many analysts to predict a rally.

After hitting its all-time high of $1,217 per ounce in November, gold prices have tumbled in December and January, with prices dropping into the $1,070 range in late January. This drop of nearly $150 represents a decrease of about 12%, an amount many attribute to profit taking and the sudden jump in the dollar.

The US dollar is in the midst of an unusual dynamic; its weakness does not support any sustained value increase, but it is an investment of choice against many foreign currencies that are suffering even more instability. For this reason, the Dollar Index has climbed back above the 80 mark and dampened gold investment in the process.

This conflict doesn’t look like a long term trend; in fact, many signs point to an upcoming drop in the dollar and a rise in gold prices. In spite of billions in federal subsidies, the US economy has not responded with a boom as many had hoped, but seems to be heading towards inflation. The Federal Reserve has been hinting about interest rate increases to avert flooding the market even more with cheap money. This series of events bodes well for gold.

Right now, many investors are ignoring the temporary gains of the dollar and investing in a combination of bullion and certified gold coins. Bullion can be an excellent short term option, while certified rare coins offer the potential of sustained, long term growth. Gold investment could follow the dollar with a rally of its own, and traders who have purchased gold at these lower prices stand to profit the most when gold prices rise. 

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Stewart Lawson

Senior Staff Writer - Gold-Investment.info