New high for gold in euros as debt fears cause safe haven flight
Posted on 01 December 2010 with no comments from readers
Europeans worried about the collapsing value of the euro are buying gold as well as switching into dollars. This is keeping both the yellow metal and greenback rising in value although normally they move in opposite directions.
Gold hit a new all-time high when priced in euros yesterday as the European currency took a battering again in foreign exchange markets. The Irish bailout deal last weekend failed to calm forex markets, partly because the deal may still be rejected by the parliament on December 7th and partly because the buck now passes to Portugal as the next target for bond vigilantes.
Growing eurozone crisis
The eurozone is still in crisis. And problems at the periphery threaten to move closer towards the core. Yesterday even French bond yields ticked up as the crisis deepened for Portugal and Spain, although next in the firing line are Belgium and Italy.
Gold is a logical choice for Europeans still anxious about the dollar and its debt mountain. The yellow metal is priced in dollars and so has the benefit of hedging the declining euro while not actually being linked to the Fed’s monetary policy. It also serves the same function for the UK pound sterling.
Dollar and gold rise
Normally with stock markets falling the US dollar would rally and gold fall in value as investors were forced to sell their gold to cover margin calls. But provided the fall in stock markets remains gradual this may not happen this time as European investors seek a currency hedge in gold.
This is good news for gold and supportive of the New Year rally to $1,650 an ounce propounded by gold bulls like Jim Sinclair. However, stock markets look increasingly fragile and a larger correction might still derail the gold train.
Whether to buy gold at this point is a tough call, and if you look at the silver market a more obvious spike in precious metal prices is evident. This month’s ArabianMoney newsletter is looking at precious metals for 2011 in depth and anybody seriously interested in how to play this market should be subscribing for a monthly review of this exciting market (click here to subscribe). The December edition also looks at portfolio allocations for 2011.
