Pressure on the Euro boosts the dollar and gold retreats

goldThe last week was a lack-luster week for gold. Perhaps some of the steam was taken out of the gold market due to the introduction of the new platinum and palladium exchange traded funds. The holdings of metal in the funds reached near 90,000 & 100,000 ounces in platinum and palladium respectively, after starting with just 10,000 ounces. The funds are taking considerable amounts of metal off the physical markets.

World output for gold last year was 2553 tons compared with 2409 in 2008. South Africa produced 222 tons of gold last year, down from 234 produced in 2008. The country lost its number two position to Australia, which produced 223 tons last year, while China produced 330 tons.

On Friday January 15, the euro slid as much as 1 percent compared with the dollar on continued concerns about Greece's struggles to cut its budget deficit which is almost 13 percent of gross domestic product, more than four times the European Union limit. Greece will present proposals to the European Commission to lower the deficit to 8.7 percent by year-end. The Euro suffered losses against most of its most traded peers, and gold pulled back around $10.

Once again there is talk that gold is forming a bubble at these levels. Like I've stated many times, I heard this when gold went from $250 to $500. I heard it again when gold moved to $700 and then to $900. And, once it traded above $1000 I heard many analysts state that gold had peaked. As far as I am concerned, the fundamentals driving the yellow metal are all still intact, and this market has a long way still to go.

Even if the dollar stages a comeback in the short-term, with US national debt approaching USD12 trillion, interest rates at around zero, unemployment at 10%, how is the dollar going to reverse its downward spiral? As the rating agencies continue to downgrade countries it the Eurozone we may see some pressure on the Euro which may in the short-tem boost the dollar, but ultimately, the continual problems facing these fiat currencies will push the gold price to new levels.

Historically, gold has been an effective preserver of wealth, and we have seen it perform this function exceptionally well over the last 9 years. No matter what currency you used to buy gold at the inception of this bull market in 2001 when gold was $250, right now your investment would have grown by some three to five times. Perhaps not as much had you used the Swiss Franc or the Canadian dollar, but my point is that for the last nine years, and in spite of experiencing one of the worst financial crises in history as well as one of the worst recessions, if you had invested in gold your investments would have done very nicely. For example if you had converted say USD 100,000 into Euros in 2001, today the dollar equivalent would be around USD 130,000. But, had you converted that money into gold, today the dollar equivalent would be USD450,000! Now what's wrong with that?



It appears that gold is trading in a range again, between $1150 and $1075. A break of one of these levels would indicate the next short-term trend. But, one must not ignore the long-term trend which is still very much intact. At the moment I remain neutral looking to buy on any reasonable dip..

About the author

David Levenstein is a leading expert on investing in precious metals .He brings over 29 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on and David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.

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Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.