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Friday, April 23, 2010

Gold Rocking on Weaker Dollar

Gold has exploded upward today, rising to as high as $1,156.35 an ounce, as the U.S. dollar fell against the euro after Germany again confirmed it stood ready to help Greece in their sovereign debt debacle.

As revelations have come out that Greece is far worse off than originally thought, more concerns have risen on whether bailing them out will even help the country, which could need another cash infusion not too long into the future, and this doesn't even deal with the problems coming from Portugal and Spain, which is highly doubtful the European Union could handle; even if they had the will to.

But what happens when they bail out Greece and the other member countries come with hat in hand wanting their bailout? It will probably be the beginning of the end of the European Union, if it already hasn't started with Greece.

Of course this story has gold going up and down along with the value of the U.S. dollar versus the euro, and that will continue to play out.

If Greece does get bailed out, gold will rise, if not, the dollar will increase in value and gold will have downward pressure on it.

The longer term concern for the value of gold is inflation, and as we've seen from the Labor Department, that has surged in the two most important sectors for consumers: food and fuel, which will make gold more attractive in the months and years ahead.

It's hard to tell how the European debt crisis will play out, as we don't know if the countries are coming clean or not, or if they're even capable of understanding where they stand economically.

For now most things are working in the favor of gold, and we won't know until it unfolds how deep the European Union is with the crisis it faces, and how that will affect the value and credibility of the euro.

Concerning gold, the other factor will be how soon the U.S. decides to increase interest rates as well, which could also put downward pressure on prices, at least for a short period of time.

The bottom line for gold will be inflation and safety, and the more we look at Europe and inflation, the better gold looks.

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