Use Declines to enter into Gold

In the last couple of days, gold price has fallen by around 6.5% from its peak. This correction though expected may last longer than expected. The recent fall in gold prices is a result of the positive movement in dollar due to better than expected US jobs data released by Labor Department. According to the report, the US labor market improved markedly in November, with the unemployment rate falling back to 10%. Gold has historically moved in a reverse direction to the US Dollar and this explains the current weakness. Moreover the Chinese government has indicated some apprehensions over a bubble developing in gold.

Gold had rallied in a very impressive way in 20 sessions since the beginning of November to hit an all time high. It hit a new high above $1,226 an ounce on Thursday, up nearly 40% this year.

The recent buying by RBI of 200 tonnes of gold from IMF reinforced views that gold has established its status as an investment asset, as well as an alternative currency. The move also strengthened speculation that other emerging country central banks will follow suit, particularly China, which has the world's largest foreign exchange reserves worth $2.27 trillion, mostly held in U.S. Treasury bonds.

China may tap the IMF or global marketplace for gold in order to expand its proportion of gold to forex holdings for the purpose of diversification and the desired quantities cannot be sourced on the lower cost domestic market. Many other central banks including RBI have shown their interests in buying gold on corrections.

Gold has always been a good investment option when uncertainties surround the financial markets. The liquidity surge everywhere is finding a safe and lucrative avenue to invest in. Gold has broken its 30 year old range and on various technical and fundamental parameters is ideally suited to absorb a large part of this excessive cash supply.

Hence, long term investors should consider this fall as another buying opportunity into this yellow metal.