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Bad news for gold futures can mean good news for the economy. Gold prices have reached meteoric prices in the last few years as the economy took a tumble. However, recent prices now may show that trend reversing despite the chaos in Europe and some uncertainty in the market. In the last eight trading sessions, gold has taken a hit six times signaling to the upward trend that had gold bugs in a buying frenzy.

Central Bank’s Role

Gold is easily influenced by actions taken by central banks. This week, the European Central Bank (ECB) loaned a total of $641 billion to European banks to help stabilize that zone. This is far above the $408 billion other sources had forecasted. Decisive action by the ECB means less uncertainty in the European market and a least some time and resources to recover from the financial fallout afflicting the European Union. This, along with a rise in the dollar’s strength, means that investors are no longer worried as much about a financial crash as they had been previously.

Dollar’s Strength

The United States economy is still experiencing its own obstacles, but the dollar’s strength based on the dollar index shows it slowly increasing. It reached a high of 80.102 and continues to hover nearby at 79.954. Considering that the dollar index is a comparison of the dollar unit against six other global currencies, it indicates to investors that the dollar may be a safe haven once again.

Risk Management

Gold is popular when a market is chaotic or inflation is on a rampage. Inflation can cause the dollar’s loss of purchasing power while gold retains its purchasing strength. However, gold assets are not as liquid as paper currency, and they must be stored when bought in physical bullion or coins. Thus, investors only favor gold when there is great uncertainty in the market and they wish to preserve their wealth against future market drops or higher inflation. Neither of these doomsday scenarios appears to be on the horizon anymore as the ECB has stepped in to manage the crisis in Europe and the United States dollar is now showing signs of strength.

Safe Haven Re-evaluated

Gold is the safe haven when certain market conditions make it the only way to preserve wealth. However, it does not engender liquidity. The U.S. dollar, on the other hand, has great liquidity, not only in the United States, but in many different countries. Investors that might have been scared off earlier as the United States struggled to get its economy back on track, no longer are as spooked by bad economic news. Even with recent admissions that the housing market in the U.S. was much worse than previously thought, it does not affect how investors feel about future prospects in both gold and the dollar. For now, gold is losing its luster while the dollar continues to gain new fans. However, there is still some hope that gold may end up making more gains as new demand arises in Asia and Europe, but not before a few price corrections take place in the market.