Gold slipped back in late trading on Monday to end the day below the $730 level which it had been testing since Friday. This seems mostly to have been on profit taking, a slightly better dollar/euro rate and a falling back in the oil price, although it seems that sentiment remains bullish for gold and bearish for the US dollar.
Reuters quotes Tatsua Kageyama, a Japanese gold analyst at Kanetsu Asset Management as saying "The pitch of the rise has been too fast. Gold has been overbought and it's about time to see a major correction." But he went on to say that underlying sentiment was strong due to the poor dollar outlook and the possibly weakening US economic outlook.
Japan had been on holiday Monday and on Tuesday gold futures also fell back on the Tokyo market by a little over 1 percent.
Elsewhere in the Far East and Australia, gold was marked down to around 8 by close and there has to be the chance of a further temporary weakening now that the 0 level on the downside has been breached.
Traders though feel any downturn may be temporary, but gold euphoria has a record of being breached as those who chased the metal price up to $730 in May 2006 will know well, with the price losing all its gains in a two-day period. Gold can be volatile.
But since then factors have changed which should be gold supportive. The credit crunch has been creating substantial market nervousness, with western stock markets proving to be extremely volatile at present. This suggests that gold's safe haven role may continue in play, and the dollar is still perceived as weak and this has arguably been the principal driver in the recent rise in the gold price. The upwards blip in the dollar against the Euro and other currencies yesterday may be shortlived and if it falls again, as most predict, gold should continue back on its upwards path.