Greece, Portugal, Spain, Italy apart from being tourist hot spot have some thing else in common, all of them are in are position to default in coming days due to their ballooning debts. Greece has deficit of 12.5% of its GDP highest in Europe and more than quadruple of what it should be according to ECB guidelines.
Debt crisis in Europe has put considerable downward pressure on Euro, leading it nosedive against dollar from $1.5144 on 22/11/09 to 1.385 on 01/02/10. Strengthening of dollar has lead to fall in gold price by almost $100.
US economy despite posting third quarter GDP of 5.7%, (which has been primarily due to build up in inventory) still has 10% unemployment and no economy can said to improving if it has that level of unemployment. So revival in dollar can't be comprehended due to recovery in US and Fed has again retreated that interest rate will be near zero levels.
Recent fall in gold has just been a consolidation phase and due to dollar's strengthening. In the coming days I think the negative correlation between Gold and Dollar will end and both will move in same direction in near future. Reason behind this is Euro will be under immense pressure in coming days due to debt crisis in European region which in turn reduces the appeal of Euro, take for example:
Central banks that disclose currency breakdowns bought a record $60 billion worth of Euros in 2009’s second quarter, more than half of their new foreign reserves in that period. The purchases prompted speculation that U.S. attempts to spend itself out of the worst global recession in six decades would prompt policy makers worldwide to continue diversifying away from the greenback. Instead, Central banks reversed course, putting 15 percent of new reserves, or $17.8 billion, into Euros in the next three months, the smallest share for any quarter in which policy makers’ reserves grew since early 2008. Central banks put 45 percent, or $52 billion, into dollars in the third quarter, up from 36 percent.
This goes on to show the low confidence Euro is enjoying at the moment, but dollar can't keep on reaping benefit due to Euro's misfortune. Dollar itself is facing considerable pressure due to towering debt that US government has build up in the past year. This year Obama has proposed a staggering budget of $3.8 trillion almost 3.5 times of India's GDP. Budget deficit will soar to $1.56 trillion, (I tried to figure out how many countries have economy of that size and guess what it is 8 out of around 200 reported).
Dollar being the international currency (and will remain that in near future until countries start to accept SDR as currency to trade with), and most of the commodities are quoted in dollar terms any movement in dollar impact the pricing of that commodity.
Thus with Gold although lacks any commercial value in comparison with silver, has from ages been considered as the wealth accumulator, so in times of panic / lack of confidence in other safer asset, GOLD will benefit.