Should we still be betting on gold?

When the world's financial system appeared on the verge of meltdown, gold soared. But more recently, it slid to its lowest level in over a year. So is gold still a good bet?

When the world's financial system appeared on the verge of meltdown following the collapse of Lehman Brothers last month, gold soared, gaining 22% to $911 an ounce by mid-October. But more recently, the ultimate safe haven "has not proved quite so safe", says Javier Blas in the FT. Last week it slid to its lowest level in over a year before regaining the $700 mark; it has lost around a fifth of its dollar value in four weeks.

Physical demand has been strong, with Fidelitrade, one of the largest gold coin dealers, last week quoting the popular South African krugerrand one-ounce gold coin at a $75 premium to the spot price. But other, stronger forces are at work. Gold has benefited from the rising oil price over the past few years as it has stoked demand for a hedge against inflation, so the reversal in this market has put downward pressure on gold. The recovery in the dollar, up 5% last week alone against a basket of six trading partners' currencies, isn't helping either.

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