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The dollar weakened Thursday as the Irish debt situation became clearer, giving the euro a relief lift. This, in turn, pushed global capital back into the risk trade . . . but also into gold.

Risk currencies bounced back nearly 1% yesterday on news that any bailout of the Irish credit markets would pinpoint the country's banks and not its sovereign debt. Previously, fears that Dublin could be forced into a massive rescue package -- possibly costing $150 billion or more -- rekindled traders' fears that another Greek crisis was at hand. However, if the losses are limited to troubled local banks like AIB and IRE, the full-fledged moral hazard of saving a euro nation from its debt can be avoided.

In the current environment, the irony is that the euro has become the king of the risk currencies -- even though it represents one of the biggest economic zones out there and that at least in the core, national balance sheets are already clean and getting even cleaner all the time.

Meanwhile, although traders seem willing to shoulder a bit more currency risk again, they are also nervous about inflation risk. As a result, gold -- and bullion-backed ETF GLD climbed Thursday as well.

This is not a commodity-linked trade, since if anything, commodities outperformed gold by about 2 percentage points yesterday, while commodity-backed currencies as embodied by CCX lagged.

Mixed signals like these often frustrate traders, but are normal at times of market transition.

Disclosure: No positions

Source: DXY Index Retreats, Giving Gold the Upper Hand