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February 12, 2010 – In spite of Friday gains by the US dollar, gold investment continues to show signs of improvement and resisting conventional thinking that gold prices and the dollar are always inverted. Both gold prices and the US Dollar Index have seen increases this week, a condition which could continue as various forces are currently at play, affecting both commodities.

Bruce Dunn, vice president of trading at New Jersey-based Auramet, said that gold was underpinned by the Greece bailout news and position-squaring ahead of a U.S. three-day weekend. "There was a fair amount of short-covering. The moves have been so volatile lately that you just don't know what is going to happen from one day to the next," This was in contrast to the previous week when gold dropped $60 due to the fiscal concerns in Europe and the risk aversion and technical weakness that they cause the gold market.

The dollar on the other hand is trying to balance strength against European currencies against lingering economic dangers in the US economy; while the euro is weaker, the dollar is still weak and very vulnerable. Said Simon Weeks, head of precious metals at the Bank of Nova Scotia, "People don't really want to be overexposed to dollars. They certainly don't want to be overexposed to euros and so on, and to that extent gold is acting as a currency in its own right. So what you will find is even if the dollar strengthens, gold can strengthen as well. In non-U.S. dollar currencies, it is actually performing really well."

Tobias Merath, head of research at Credit Suisse echoes the opinion of many when he states, “Investment demand is likely to be the wild card, and we think once the dollar starts weakening again, which is our view ultimately, then gold should resume its longer-term uptrend." For investors, this means following a successful gold investment strategy based on what gold is doing, not solely on the movements of the dollar or any other currency. 

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Stewart Lawson

Senior Staff Writer - Gold-Investment.info