Gold Decouples from USD - Part 2

Wednesday, June 15, 2005

Gold has reached a record price in Euros on June 13, reaching 356.50 Euros an ounce. This is the highest ever paid price since the introduction of the single currency, which in contrast to gold has lost a lot of it's glimmer, declining more than 13 percent to the US dollar. Gold also rose to a 12-year high denominated in Yen.
Gold in Euro

GRAPH: Gold price in Euros since January 2001. Courtesy RBC Capital Markets

While the Euro had an almost perfect negative correlation to gold around the millennium, this has changed significantly over the years.
Gold Euro Correlation

GRAPH: Gold and the Euro have grown a higher correlation since the millennium. Courtesy RBC Capital Markets

The relationship has become particularly strong since 2003 when gold passed the 400-dollar mark. The main reason for this has been the perception of gold and the Euro as an alternative investment to US dollars.
As Europe has climbed on the bandwagon for those with near to no growth, the Euro is no longer seen as a safe haven for investors and there is mounting speculation that the ECB might cut interest rates in order to spur growth.
Gold bugs see the precious metal's robust performance as a sign that the correction from this year's high at 443 to a low at 415 dollars has cleared the way to a new attack on the 2005-high after the bounce-back from the low. Gold held up well today despite the good recent US economic indicators, trading stable at 428 dollars an ounce.
Japanese futures related selling has weighed on the gold price this week as Yen-denominated gold prices hit a 12-year high, precious metals experts of UBS reported via the Australian Investment Review. The team's trading contacts estimate that 1 to 1.5 million ounces of longs have been liquidated over the last week, leaving the net long positions at "certainly less than 1 million ounces." UBS remains "cautiously optimistic" for gold in the near term.
NOTE: Gold Decouples from USD - Part 1 is here.


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