Gold continued to trade at new highs in 2007 and well into the first quarter of 2008, breaking the $1,000 barrier in mid-March.  Escalating prices were mainly attributed to weakening in the US economy, a sliding US dollar, and the continuing credit crisis. However, after breaking out in a series of record highs early in the year and peaking at US $1,030 on March 17, the metal has begun a gradual decline, hitting a three month low of just above US $860 per ounce at the end of April.  Overall analyst sentiment suggests that the latest economic trends, including a temporary recovery of the US dollar, a moderation in inflation expectations and seasonal weakness in the second and third quarters, do not bode well for the gold price in the short term but that the longer term outlook should remain bullish in relation to current price levels.

Gold’s price correction since March has also been attributed to feeling within the investment community that the worst of the credit crisis may be over. The Bank of England recently reinforced this belief and stated its opinion that some credit markets are considerably overstating the eventual losses to be realized.  As stock indices are beginning to recover, the safe haven status of gold as an investment is becoming less attractive.

Of notable significance in April was the sharp fall in the StreetTracks ETF physical bullion holdings, suggesting an important change in investor sentiment. Between April 21 and 24, the fund recorded its largest three-day decline ever, with total redemptions of approximately 1.63 million ounces of gold, or 6 percent of the total gold held by the five major gold ETFs.  Gold interest has become much more volatile and it is apparent that the market is hugely sensitive at the moment.  Should positive sentiments about the economy persist, then gold may continue to feel further downward pressure.  At the same time, anything to dent this sentiment, however brief, could rapidly send the position into reverse and see another gold price surge. Regardless, so long as global gold production stagnates and falls, as at present, the longer term outlook for gold remains positive.