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Gold under pressure
Gold under pressure © Peeradach Rattanakoses/Shutterstock.com

Gold under pressure

Gold dropped to a four-year low of $1,131.24 an ounce on Nov. 7, hurt by the dollar's strength and weak inflation, and Ablin thinks that trend will continue next year.

A strong dollar hurts gold because gold is priced in dollars, making it more expensive in foreign currency terms. Low inflation hurts gold because it is used as a hedge against rising prices.

The dollar climbed to a seven-year high against the yen and a two-year high against the euro earlier this month. Its appreciation stems from the U.S. economy's superior performance compared with other developed economies, such as Europe and Japan. Ablin expects that divergence to continue.

As for inflation, U.S. consumer prices rose only 1.7 percent in the 12 months through September. Gold's current level "still predicts higher inflation, and we don't see much inflation," Ablin says. "And even if there is some inflation, the Fed is ready to tighten."

He expects the Fed to boost interest rates next year. "They seem hellbent on raising rates sooner rather than later." Higher rates hurt gold, as they limit inflation and tend to boost the dollar.

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