The rise in the price of gold has been an impressive thing to watch - at least in U.S. dollar terms. But as Dominic Schnider, an analyst at UBS, pointed out, the rise has been far less spectacular in other currencies, such as the euro and the Swiss franc. In other words, the gold story is mostly about the weakness in the U.S. dollar.
"So what triggered the drop in the USD? Yet again, monetary policy and the outlook of more unorthodox monetary policy," he said, pointing to recent moves by Japan and expected stimulus measures for the U.S. Federal Reserve.
"Some market participants are already talking about a competitive devaluation in the currency space. Since we don't expect any changes in monetary policy behavior from the developed world, gold prices should be well supported and price corrections should be limited and short-lived."
In other words, if you already own gold investments, don't sell yet. His short-term trading range for gold had been $1350 (U.S.) an ounce - a level reached during Wednesday's trading activity. Over the six to 12 months, though, Mr. Schnider believes that gold will rise to $1500 an ounce. On the other hand, if you're thinking about moving into gold, he recommends buying on the dips.
"Given that the metal is now in overbought levels from a technical perspective and physical demand has dried up in recent days, new positions should wait for price setbacks, in our view," he said. "We see potential price dips towards $1250/oz, as short-term profit taking sets in on fading price momentum."