The multi-faceted yellow metal gold had a hard time during the wake of the worst recession since the Second World War as an untimely rise in US dollar eclipsed the safety haven appeal of the metal. Gold was also caught up in the imbroglio where panic selling engulfed the market. The metal usually shares an inverse relationship with US dollar as it is considered an alternative investment to the currency.

However, the metal benefited from m the subsequent dip in the economical cycle, which pummeled the US currency, driving investors towards the safety of gold. The metal, since then, went o on to explore new heights with investment and safety buying piling up, lending the metal with wings to rise.

Economies through out the world introduced stimulus packages and bailouts in their r desperate efforts to resist inflation and rekindle growth. These financial inducements seem to be bearing fruit with economic data releases slowly creeping into positive territory. Favorable economic c conditions have once again put US dollar in the lime light with the culmination of the year 2009, in turn weighing on prices of gold.

Prices well supported by rising physical and investment demand
Gold prices, during February 2010,, hit its lowest level since the month of November 2009 as technical selling that emerged following a stronger US dollar and Macro Economic concerns that threatened the European nations and its currency put pressure on the market.

However, prices of gold have held up well at supports after falling almost 15 percent from the all time high of $1226.

Emergence of significant physical d demand at lows has helped the metal keep most of its gains from the Bull Run that commenced during the beginning of the 21st century. Investment demand of the metal has also been supporting prices.

Physical demand from the major importers like India and Turkey has been encouraging. According to the Bombay Bullion Association imports of India during the month of March 2010 has jumped towards 23-28 tonnes as compared to 4.8 tonnes during the same time last year. Higher imports of gold from India are attributed to the wedding season in the country, which begins in the month of April 2010.

Recovery in US dollar weighed on the metal from the beginning of 2010
The yellow metal had risen towards its all time high of $1226 in the international spot market by the end of the year 2009, supported mainly by the weakness in US dollar; however, the US currency, after falling towards record lows, managed to rein in the bears and resumed its ascend following renewed economic optimism.

The US GDP climbed out of negative territory and jobs market also bounced back, ensuring the recovery in the region to be underway.

The US dollar had slid broadly against its major counterparts during the year 2009; nonetheless, it proved to be beneficial for the country’s trade balance, which narrowed.

The depreciating US dollar discouraged imports and emboldened producers to export more, resulting in it narrowing the trade balance and supporting the US currency in its recovery.

The stimulus packages introduced by the USA to battle the recession also pose a threat to the economic development in the economy due to creeping inflation.

The US Federal Reserve raised the discount rate it charges for emergency loans to banks from 50 to 75 basis points, but has claimed the step to be a measure to regulate the lending activity and not to be perceived as a monetary tightening. The Fed has however maintained its interest rates near zero levels and any signs of an increase in the rates will be extremely supportive for the US dollar.

Greece woes provided the US dollar with additional strength
In addition, falls in the European currency also gave the American green back the impetus to rise towards further highs in the first quarter of 2010. The second and an unexpected phase of the worst recession since the Second World War showed its ugly face in the Euro Zone with Greece mostly bearing the brunt of the phenomenon.

After the elections in Greece during October 4 of 2009, George Papandreou comes to power and the new government of the country discloses the budget deficit to be 12.7 percent of GDP, which was more than double of the previously announced figure. Economic figures continue to point toward harder times to come in the country, with public debt of Greece rising towards 121% of the GDP in 2010 from 113.4% during 2009.

The debt ailment of the country has already spread to Portugal and Spain and faces a risk of it spreading further.

The worst of the global carnage hit the stock markets of Greece, Portugal, and Spain, three heavily indebted Euro-zone countries whose ability to re-pay lenders, including $331-billion owed to German banks, $307-billion owed to French banks, and $156-billion owed to British banks was in doubt. Swiss banks hold 47-billion Euros of Greek debt, equal to 12% of Swiss GDP.

While, Greece, Portugal, Ireland, and Spain are the most vulnerable, even Germany, the Euro-zone’s locomotive, has a public debt expected to reach 90% of GDP this year, and a budget deficit expected to reach 6% of GDP in 2010.

The ongoing troubles in the South-European country, Greece, are taking its toll on the European currency, with it reaching fresh lows against the US greenback.

Emergence of safe haven buying supported gold amidst US dollar strength

However, building uncertainties in the region have given rise to safe haven buying in the yellow metal.

This paradigm shift was first observed in the Euro denominated gold, which held on to most of its earlier gains and trended towards the all time high, while gold denominated in dollar fell almost $200 from its all time high of $1226.

The buying in gold that has emerged during such murky economic conditions has reversed the yellow metal’s inverse relationship with the US currency and has been rising alongside.

If the European Union fails to forge a rescue plan for the debt laden country investors are sure to continue with gold as their investment of choice, thereby keeping the yellow metal immune from the strength in the US currency.

The buying in gold that has emerged during such murky economic conditions has reversed the yellow metal’s inverse relationship with the US currency and has been rising alongside.

If the European Union fails to forge a rescue plan for the debt laden country investors are sure to continue with gold as their investment of choice, thereby keeping the yellow metal immune from the strength in the US currency.

The correlation of gold with other major commodities being traded has witnessed considerable decline during the first quarter of 2010. The movements in crude oil prices were mostly in accordance with that of the US dollar, resulting in a decline in correlation with that of gold.

Silver, on the other hand, also being an industrial metal, has expressed its allegiance with that of base metals such as copper and nickel. Silver prices have moved along with base metals prices in more than one occasion, resulting in a small but significant discrepancy in their trend.

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