Weaker Gold Price May Point to Overvalued Euro
Source: Reuters (5/6/08)
It's been quite some rally for the euro, scorching its way to $1.60 against a beleaguered dollar last month, but if recent moves in gold are anything to go by it might just be time to sell.
Bullion has broken ranks with its commodity stable-mates to plumb four-month lows last week, shedding almost $200 after hitting a record $1,030.80 an ounce in mid-March .
Traditionally the greenback's inverse relationship with the precious metal goes thus: if the dollar falls, gold rises as the weaker U.S. currency makes bullion cheaper for non-U.S. investors and vice versa...
Trade between the euro and dollar accounts for some 27 percent of $3.2 trillion-a-day global foreign exchange turnover and the euro/dollar-gold absolute correlation is among the strongest -- averaging 94 percent since the start of 2007.
So it's hardly surprising that bullion's record high was attributed in part to a then record high in euro/dollar the same day...