Gold de-linking from the dollar

Gold de-linking from dollar
and beginning to rise in all currencies

Neil Behrmann

London:- A significant change is occurring in the gold market. In the past fortnight, the metal has begun to appreciate in terms of most currencies.

It is rising in euros, Swiss francs, sterling, yen, Australian and Canadian dollars and the South African rand. As can be seen from the chart, gold peaked in euros at the beginning of 2003. Since 2001, the price has been mainly trading within a range of 13 per cent. In recent days it has climbed 29 euros or 9 per cent. It is now trading at 347 euros an ounce and has thus broken decisively through the upper trading band of €340. In dollars it is up by 8 per cent since its recent low of $390 an ounce.

Source : World Gold Council

This is the first sign that gold could be de-linking from the dollar. It is expected that the European Central Bank will cut interest rates in coming months because of the depressed Eurozone economy and the fall out from the Madrid atrocity. The dollar should strengthen against the euro in such circumstances, especially if the US economy shrugs off the global war against terror and remains relatively strong.

Global terrorism and conflagration in the Middle East pushed gold out of its trading range of $390 to $415 an ounce with the metal rising to almost $420 before retreating to current levels of $416. Then on Friday it burst through to $423. There are enough investors -especially in the America-who want to buy some gold as a portfolio hedge against uncertainty. Cheap money and fears of inflation are incentives. Dealers thus believe that the trading band has been raised to $405 to $430. The key upper resistance point is $428. If gold breaks that level, commodity and hedge funds, following chart signals could push it towards $430 and $450 will be in the sights of the bulls.

But gold is likely to remain volatile in markets that are whipsawing. Bullion dealers and refiners report that physical demand in the main consuming areas of the world, notably India, China and South East Asia, has contracted. These areas are price sensitive. So in the short term the price is being moved by hedge and managed futures funds and is swinging within a 8 per cent range. There are already signals from the European Central Bank that interest rates will fall. The euro is flirting with its lower support level of 1,21. A further decline could cause gold to dip in terms of dollars, but remain stable in euros or even rise.

31 March 2004