Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold is De-coupling From the Dollar Euro Exchange Rate

Commodities / Gold and Silver 2010 Feb 26, 2010 - 11:13 AM GMT

By: Julian_DW_Phillips

Commodities

Best Financial Markets Analysis ArticleFurther to our piece on the €:$ Exchange rate last issue, we have found that the topic, at last, is hitting mainstream. It is always difficult to be weaned off what you thought was a reliable formula giving you the inside track on the gold price. The oil: gold relationship was a case in point. Many tried to use it as a measure of the next gold price. But in the case of the €:$ exchange rate dictating the direction of gold the consequences of following this line will shortly prove to be very expensive for Traders on COMEX and elsewhere.


As you saw from the chart of the € [Euro] gold price since 2001, and particularly from 2005 [when it was becoming apparent that European Central Banks were faltering in their determination to sell gold] the € price of gold began to rise. But this was nowhere near enough to halt the link of the gold price to the €. Even today short-term moves come about by a move on this rate. This will only slowly diminish as the crises facing both the Eurozone and the U.S. $ increase in severity. We are seeing an acceleration of that now, with Greece's problems persisting and Spain waiting to enter center stage.

Why did the relationship between the $, the € and the gold price come about?

The $ troubles begin

The € was formed in 1999. Why? The use of the $ in all global transactions became unsatisfactory as the currency of the burgeoning Eurozone and the alternative routs of its own currency became attractive to Europe. Under its wing the currency should have united, at least financially, most of Europe. After all it should have reflected the economy of Europe overall, whereas the U.S. $ reflects the economy of the U.S. [even though it is used in most global transactions] and is irrelevant to that of Europe. So another global trading bloc introduced its currency independent of the $ [bear in mind that the $ was not replaced in Europe, local currencies were], one large enough to set up an alternative measure of value. Since then its value against the $ has moved from 1:1 to 1:1.5 at its worst. This is over 10 years. It does reflect the profligacy of the U.S. currency and highlighted that the U.S. has been paying bills [to the extent of its Trade Deficit] with currency and not goods [only a balanced Trade account would do that]. This is only abnormal when this goes on and on and no effort is made to correct matters, as is the case in the U.S. So it seems fair that a bloc like the Eurozone with a healthy balance of payments should be a good measure of the $. Since then little has been done to rectify matters, hence the steady ongoing decline of the $ against the €.

The € troubles begin

As worries about the parts of the Eurozone grow, the € is losing its reliability as a constant measure of value. When the Eurozone was conceived no room was made for a loss of sovereignty. The Union was united for trade and finance alone. Yes, there is a European Parliament, but national government and national interests will always be preferred to Eurozone interests. The problems facing Greece and in the future Spain, France, et al will mature to bring down the € in time. After all it was the benefits to each nation on the financial front that brought them all together. Becoming like the States, under one government, was not considered. With a rich, productive, efficient North and a poor Tourist-oriented South in the Eurozone, it was only a matter of time before the pressures were felt under one currency. In the past strong currencies revalued and discouraged the flow of capital from poor to rich nations. As the capital left these nations and their internal inefficiencies rose to the surface poor nations began to over-borrow despite the fact that nothing would change in the future. A crisis was in the making. It's now here and there is a perceptible unwillingness to support each other in all seasons, but only in fair weather, it seems. Trouble is that the pressure will grow under one currency, not diminish.

So why refer to the $:€ exchange rate for the gold price?

The De-coupling Gold Price

As you can see there never was a good case for the link of the € to the gold price. But it has taken the internal national problems within the zone to knock confidence in the €, for this to become visible. Looking ahead, it would seem that the Eurozone problems will not go away until there is a mechanism for leveling the playing fields between rich North and poor South. Don't think for one moment that the rich will give handouts to their poor brothers in the South to achieve this on an on-going basis. The Southern nations are breaking Eurozone entry rules and must pay the penalty! How can the € bear up under these "fixed currency" problems? In short, it can't. As for the gold price, it must walk its own road, no matter whether the € or the $ is rising.

A trip back to basics is needed here. What common ground does gold have with the either the $ or the €? None! Gold has no politics, it has no nationality, but it does have a respected value when times are dire. Paper currencies lose value in these times. Ask yourself, why did President Roosevelt deem it necessary to confiscate gold in 1933 then devalue the $ against it in 1935 [apart from engineering the acquisition of foreign held gold]? As Greenspan put it in his early days, "gold is money in extremis" In wartime all nations and governments respect gold. It does measure value, even when it is not a means of exchange. The skill is in determining when extreme times are with us. Bear in mind the war did not start until 1940 in the U.S. but the gold confiscation measures were taken after the Depression [plus banking crisis] had been going for four years. Today's pattern may well not be too far short of that [and in place of a rising Germany [economically] you now have a rising China [economically]. Look back to the end of last century [1999] and then at now, haven't times changed?

At the moment, as the $ rally falters and the € weakens, a strange stability is given to the $:€ exchange rate as they glide down together. The behavior of the gold price is beginning to testify to that. But as slow as a tidal change is to the sea, with the waves keeping up their constant coming and going, so the institutions and traders in the gold market will move away from the $:€ link.

Impact on the gold price Subscribers only

2010 gold prices forecast. For Subscribers only - We are in the process of forecasting prices in 2010 in Gold - Silver - the $ - the € - the Global Economic tensions developing - The Oil Price - COMEX - Long-Term Gold Investors - Chinese retail demand - Indian retail demand - European retail and Institutional demand - U.S. retail demand.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2009 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules