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Forex: Gold bugs tested

Gold is softer again this morning as its attempt to run up to the $1400 level falters. Yesterday saw the precious metal decline some $20 bringing it back from its six month high to the mid $1360 area and this morning it’s below this level at $1358. Gold has enjoyed a strong start to the year for a number of reasons such as the concern over China’s growth, the Ukrainian geopolitical tensions and let’s face it even the most ardent of bears would probably tell you that the $1200 hit in the summer of 2013 and then again in December looked like a good buying opportunity or at least they’d be hard pushed to argue against it in hindsight considering that the level has created a clear “double bottom” on the chart. But one of the main drivers has been the dollar’s surprise weakness so far in 2014. Many were expecting the dollar to be underpinned by a continuation of the taper and even gradual dollar strength, which in turn should put pressure on gold. However, this has not been the case at all as we fast approach the next FOMC meeting, which commences today culminating in tomorrow’s rate decision. Investors expect the next round of tapering to continue winding down the Fed’s easing and this could keep gold prices suppressed for the time being whilst underpinning the dollar over the short term.

The dollar’s strength this morning is having more of an effect on sterling which will be in focus today and tomorrow ahead of the UK Chancellor’s Budget. We always get leaks ahead of the Budget and this morning has seen a few that haven’t attracted investors to sterling as GBPUSD softens to 1.6600. Also, this morning sees the German ZEW Economic Sentiment which could sway movements in the euro.

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