Yesterday's short-covering rally in gold has fizzled as a resurgent dollar tops 84 on the DXY again. This is contributing to the lower prices in precious metals after yesterday's excitement.
A single large sell order in Asia at a time of extremely thin volume early Monday had the earmarks of an attempted takedown on gold prices, but the market decided to not play along. Afternoon prices spiked to just below $1,400 an ounce as the shorts got squeezed. The momentum didn't hold in European trading today, and precious metals have seen a steady decline in New York this morning.
A statement from R.J. O'Brien & Associates in Chicago states that gold has probably established a double bottom, and they predict that we may see $1,500 an ounce next month. Others are also speculating on the possibility that the decline in the yellow metal has been halted, but everyone is hitting the sidelines to await Fed chairman Ben Bernanke's testimony before Congress tomorrow on the state of the economy. Also on the docket for Wednesday is the minutes from the May 1 meeting of the Fed's Open Market Committee, where national monetary policy is set.
If the $85 billion in government bond purchases continues, interest rates will stay depressed and reduce the opportunity cost of holding gold. Another upside for gold is that injecting $85 billion every month into the market adds to the devaluation pressure on the dollar. This makes dollar-denominated commodities, like gold and oil, cheaper to buy in other currencies.