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Gold And Euro

It has been a wisdom for decades that there is a relationship between the movement of Gold and the movement of the USD. This relationship which has been non-existent for a very long time appears to reestablish itself. USD is gaining strength against the Euro and Gold is losing its price stability.

It is strange relationship at the moment. The world is full of risk and full of doomsday stories. Greece the cancerous country in Europe appears to be falling politically apart. The two main political parties lost voters in a dramatic landslide political upheaval. Radical parties on both the left and the right side of the spectrum are gaining traction with dubious promises to change everything for the better. The financial markets are judging the changes for the worst meaning the exit from Euro-zone. Spain is the other culprit recently not to mention French election and the shift to Socialists which are back in power after nearly two decades of absence.

Euro vs USD a weekly price chart

Source: Bloomberg

Finally Euro reacted to those negative news and as the chart above shows the Euro begun to depreciate below the 1.30 area. The yearlong depreciation of the Euro continues to gain speed. Naturally USD is the default currency in times of tension and risk. It is no very different this time. However, traditionally Gold tended to be the safe haven. It appears not at the moment. It is hovering around support levels of some 1580-1560 USD per ounce. The great question for the coming days will be if the gold price will collapse or if it will rally. At the moment there are good arguments for both opinions. Risk-aversion is not driving the gold price at this moment in time. See following chart.

Weekly gold price in USD

Source: Bloomberg

It is the time of reckoning. It is not a single risk which drives the markets at the current moment. There are various risks which will have different influence on both assets. People who are worried by the European crumbling economic fabric will rather decide to dump the euro and transfer the money into other currencies like USD.

Gold has a different fight to fight. The natural buyers in China and India continue to be reluctant. Fear of inflation nearly died out. Strong USD could again become a meaningful driver for Gold price. There is very little support for the yellow metal. The gold negatives and Euro negatives may again lead to some coordination in Gold price and Euro price performance. Both might be heading south.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.