Liquidity in cash remains tight for investors with many of them selling out of gold towards the year end. The strength of the Dollar has been evident with gold losing over 5% in Dollar terms, yet the drop was not so dramatic for the Euro or Yen – a clear sign of the isolated relationship between the Dollar and gold.

The live gold price has been caught up by lower physical demand, a strengthening dollar and less appetite for risk towards the end of the year. Manufacturing demand strengthed due to the lower prices yet failed to provide any resistance while the financial demand continued unabated – central banks continue their net buying. The macroeconomic picture remains optimistic for gold in the coming year given inflationary pressures and negative real interest rates.

Gold remains in its upward trend despite the recent losses, the multi month rising channel and 200 day average remain bullish. Dips into the lower 1500’s represent buying opportunities with upside targets of 1800 to 1840 in the short term. Longer term targets of $2000 by mid 2012 remain realistic.

Growing concerns about the health of the US economy have fuelled rumours that the recent boom in commodity prices could be coming to an end. Markets are eagerly awaiting US non-farm payrolls data and unemployment figures, which are expected to remain unchanged at 8.8%.

Recent commodity bulls have felt the full force of the market reversal this week with silver dipping as low as $34.45 an ounce and gold dropping to $1,481.69 an ounce. This week could turn out to be the worst week for commodities since March 2009.

So what has led to the sudden sell off? Well, silver’s gigantic drop was largely due to the CME’s recent decision to raise the margin requirement on futures contracts. Meanwhile the decline in gold was largely fuelled by reports that several large investors – including George Soros and John Burbank – liquidated a large portion of their precious metal positions in order to lock-in profits. However commentators close to the pair stated that both remained bullish on the long term prospects for gold and silver but believed a short term correction was inevitable.

John Paulson also remained bullish on gold despite the recent setback in prices and added that he believed the price of gold could top $4,000 an ounce. The hedge fund magnate stated that “In these times of uncertainty for paper based currency, I feel more secure in holding gold; it offers good protection against the paper currencies devaluation and even the possibility of generating a return on fixed investment.”

The price of gold came excruciatingly close to bursting through the psychological barrier of $1500 yesterday during trading, and it would have reached it had it not been for a strengthening US dollar to dampen the spirits. However it still managed to reach a new record high of $1498 on the spot market – helped mostly by weak European economic factors and political uncertainties in the Middle East. By the end of trading in London the price had settled back to $1490 however many are predicting that it will not be long until the $1500 barrier is broken.

The main reason behind yesterday’s surge in the gold price was an announcement that S&P was downgrading its U.S. debt outlook coupled with serious worries over Irish and Greek economies.  Ongoing violence and disruption in the Middle East and North Africa added fuel to the flames leaving many investors running to the relative safety of precious metals. While interest rates remain low in the Western World, there is little reason not to hold gold - and now the largest gold ETF, SPDR Gold Trust, has reported a 1.5% increase in its gold holdings, after around three months of decline.

With huge amounts of money being printed by governments and Central Banks obsessed with spending their way out of a recession, monetary values are being devalued the whole time - and the only constant to devalue them against remains gold, the supply of which is mostly outside, so far, the realm of government control. For the time being, gold will continue to be the safe haven of the shrewd investor.