Friday, July 16, 2010

Gold Declines on Euro, Inflation Speculation

Gold futures plunged to their lowest level in two weeks as traders speculate the gold and the euro have decoupled, and inflation may be under control for now, as economic weakness continues to hinder growth.

The euro will finish higher for the third week in a row as the illusion the debt crisis in Europe isn't a concern, mostly on the ability of Greece to sells bonds in the private market.

As long at that is thought to be taken care of concerning the overall European Union sovereign debt crisis, we will probably see downward pressure on gold prices, at least in how it responds in relationship to the euro.

Under normal economic conditions, gold will move in unison with the euro as an alternative investment and place of safety against the US. dollar, but that changed in light of the sovereign debt crisis, and now that the perception it is no longer as threatening as it had been, gold appears to be unwinding against the euro. That could of course change if and when things in Europe get worse, but until then, this should be the way things go.

Now we'll see how gold responds to the US dollar and its movement, as well as the possibility there will be very low inflation for some time to come.

At 1:45 PM EDT, gold was down $18.30, to $1,190.10 an ounce.

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