Dollar has been suppressed by the Federal Reserve money printing and high U.S. budget deficit and ultralow interest rates, yet Europe is in a worse shape making our green back look attractive. Although Italy’s trouble is bullish for gold, rise of dollar is bearish for the dollar denominated metal.
S&P cuts Italy's credit rating from A+ to A with outlook negative, citing the current political situation is limiting the nation's ability to respond effectively to its debt crisis. Gold rose in response to the news but is held back by the strong dollar. "The negative outlook reflects our view of additional downside risks to public finances related to the trajectory of Italy's real and nominal GDP growth."
If U.S. dollar (chart above) manages to break above the resistance in face of the continued troubles in euro zone, gold prices will have a hard time climbing back up again. In short term, gold prices will likely stay neutral and trade sideways. Long term, fundamentals behind gold prices indicate a $1,950 gold target by the end of this year as mentioned in the gold forecast section.
Gold stocks have not been able to take advantage of the sustained high gold bullion prices. Only a few finished in green today. Missed chance or the opportunities ahead? GDX is up 3.3% YTD compared to impressive 24.9% rise in bullion prices year to date.
