Gold price challenges the Dollar again - but for how long?

Last week, some of the more adventurous analysts at the Tier 1 banks made the outlandish prediction that Gold may approach double the value that it is currently trading at during the course of 2023.

This may have appeared to be somewhat stratospheric and hard to imagine, however there certainly has been some volatility recently which is perhaps unusual for a solid commodity which has been viewed as a steady store of value for generations.

This week is no exception. Whilst the value of Gold against the US Dollar is nowhere near the $1785 per ounce that it reached in the beginning of November, it has recovered well from the sudden drop that took place in mid-November as the US Dollar has begun to slide from its position of strength which it held for the majority of this year.

Two weeks ago, Gold had dropped to $1629 per ounce, which is some decline in a short space of time, but it has been climbing since.

Today, a noticeable upward line is displayed when looking at the chart, and gold is trading at $1812 per ounce which is its highest point against the US Dollar since mid-July.

During the course of the US trading session yesterday, there was some degree of sentiment that suggested Gold prices may continue to fall, which runs contrary to its current performance. Despite this, traders were less net-long than Monday and compared with last week. Recent changes in sentiment warn that the current Gold price trend may soon reverse higher despite the fact traders remain net-long.

Part of the reason for this level of gain in value is that the US Dollar has slid in value against other currencies and in turn against commodities due to the inflation rate in the United States having reduced to around 7.7% whereas in Western Europe and the United Kingdom it remains over 10% and in parts of Eastern Europe it stands at 25%.

This has resulted in extra costs for big corporations based in the United States when doing business with overseas suppliers and customers, as well as operating their own subsidiaries in Europe as they have to pay more Dollars for the same services or products as the domestic US inflation level goes down whilst it remains high in Europe.

In this case, it is bizarre to consider, but despite the lower inflation rate in the US, the Dollar has depreciated because of the constantly increasing costs in Europe.

Gold as a store of value is a de facto 'safety net' worldwide, therefore perhaps storing value in a physical commodity is a way of avoiding instability and volatility in liquid currency markets.

On this basis, Gold has a long way to go before it gets near last week's outlandish prediction that it may reach $3000 in 2023, but at $1812 it is heading in a steep upward direction.

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