Gold fell about $17 to $892.60 an ounce by midday Tuesday on expectations that the dollar will continue to rally against the euro, Bloomberg News reported. Gold has fallen more than 4% in about a week. Independent currency trader Andrew Resnick, who does not trade gold but follows the market as part of currency market research, says the gold-as-investment-vehicle strategy is being challenged by the U.S. Federal Reserve's efforts to stimulate the U.S. economy.
"Absent a growing U.S. economy, gold can serve not only as an inflation hedge, but as an investment," Resnick said. "But the Fed's interest rate has traders believing the U.S. economy will accelerate in the second half of 2008, which will increase demand for U.S. assets and force money out of gold and into these investments." Resnick added that he does not have a trading position in gold.
Also, silver fell 25 cents to $16.4349 an ounce; palladium declined $10.75 to $414.75 an ounce. Meanwhile, the dollar rose about 1% against the euro and British pound, but was essentially unchanged versus Japan's yen.
Gold: many roles
Still, Resnick cautioned that investors should not assume that gold's long-term rally is over simply because the Fed is trying to make the U.S. a more attractive place for investment capital via stimulating the U.S. economy. Demand for gold for use in jewelry and ornamentation will help support gold's price, he said.
"We're still seeing solid demand for gold from Asia, particularly in India and China," Resnick said. "So long as that trend continues, it will hard for gold to move substantially lower."
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