Gold Slips On Weakening Euro

Posted: Feb 28, 2012 12:01 AM

Gold and crude oil prices tracked with the euro in overnight trading yesterday, with the dollar gaining ground and investors taking profits in precious metals. 

Prices for gold are off $6.61 to $1,766.26 and silver is down $0.31 to $35.10. 

Some analysts expect the weakness in the euro to continue, possibly going as low as $1.259.  If that happens and the Federal Reserve doesn’t respond with some plan to print more money, then gold prices could correct even farther. 

It’s unlikely the current dip is anything but a temporary pull back mostly linked to investors taking profits.  Keep in mind gold prices dipped initially last week as well, then recovered sharply before finishing the week higher. 

I’m not seeing anything in the big picture that’s really changed as far as gold prices are concerned.  The situation in Europe is complicated today by European calls for assistance being rebuffed by G-20 nations.  Now Germany is hedging on following through on a commitment to give Greece another infusion of bailout cash.  It’s just a big mess on the other side of the pond and will take a couple days to sort out. 

The BRIC countries of Brazil, Russia, India and China have similarly told Europe not to expect any aid from them unless Europe is willing to allow them more influence in the International Monetary Fund.  The BRIC demand is an example of the golden rule in action; those who have the gold dictate the rules.

It’s possible that weakness in the euro could trigger a longer correction in gold prices, but I’m not prepared to go there yet.  We’ve all been to the Euro-rodeo before and the situation changes faster than the weather in Dallas. 

Besides, today we’re looking at pull back of a whole $15.00 a troy ounce, less than half a percent.  That’s not the kind of correction that should be inspiring any kind of change in strategy. 

My best guess is that some new interim solution will be announced later in the week and optimism will return.  Whether the return of sunny economic skies will be this week or next is not entirely clear.  Continued weakness in the euro could modulate a recovery in gold prices. 

I almost wish it wasn’t Monday because we’ve seen this pattern of Monday blahs followed by recovery later in the week so many times before it’s just hard to get worked up about it. 

Chris Poindexter, Senior Writer, National Gold Group, Inc