Gold has been in retreat since the March payroll report on fears of a rising U.S. dollar, which in turn was supported by higher long term interest rates. Net speculative long positions have also reached a record high in April, rendering gold very vulnerable to profit taking. Today's debacle of gold is more of a spill-over effect from the liquidation of base metals. Indirectly, though, a slower Chinese economy could cool the regional economic growth, including Japan's. If that is the case, there won't be much of a pressure for the U.S. dollar to depreciate, and thus no chance for gold to rally in the medium term. China and other Asian central banks will probably not need to interfere in the currency market to keep their currencies low relative to the dollar, which will lead to less purchase of U.S. treasury bills and other government papers. As a result, U.S. bond yields should rise, pushing up the U.S. dollar -- and finally, lower gold prices.
