The global currency crisis continues to be the driving force behind the higher gold price



On Friday, June 04, we saw some action in the currency markets, once again. After a spokesman for Hungarian Prime Mister, Viktor Orban, said that the country is in a "grave situation" because the previous government "lied" about the economy, the Euro headed south and broke through the 1.2 level against the US dollar.

Even though Hungary is a small economy and not part of the Eurozone a possible default is on the cards, and comments from Hungarian official's sparked concern that the debt crisis in Europe is spreading over Europe. However, later in the day the Hungarian government stated that the comments on possible default were "unfortunate" and pledged to stick to the budget deficit cut.

The DOW broke through the 10,000 level following the disappointing Non-Farm Payroll report released on Friday which showed 431,000 job growth in the month of May. However, that was a big disappointment as markets expected over 500,000. And, the 431k growth was largely due to an increase of 390,000 of government employment, of which 411,000 were temporary workers hired for census. Only 41,000 of job growth came from private sector.

As the US Dollar index continued to advance mainly on the back of the falling euro, it managed to break through 87.5 resistance, and it now looks set to take on 2009 high of 89.62 sooner or later. Since making a low of around 74 in December last year the dollar has gained some 19% in value as measured by the dollar index as illustrated by the following chart.



The USD Index measures the performance of the US Dollar against a basket of currencies: EUR, JPY, GBP, CAD, CHF and SEK.

When we look at the euro Index during the same time we can see that it has fallen from around 150 to 120, a drop of just over 20%. In other words in a matter of 6 months the value of the euro has decreased by some 20%!



The Euro Index is a geometric average that tracks the value of the euro against a basket of five major world currencies:        U.S. dollar (USD); British pound (GBP); Japanese yen (JPY); Swiss franc (CHF), and Swedish krona (SEK).

While the US dollar has gained in strength over the last 6 months so has the gold price. In fact, the price of the yellow metal has moved from US$745/oz to US$1245/oz in roughly the same period. This represents an increase of 67%! And, if you look at the price of the yellow metal in most of the other major currencies such as Sterling, Euro, Yen and Swiss Franc, you will see that it has made new highs in those currencies as well. If you can't see how gold is reacting to the crisis in global currencies, go have your eyes tested!



Iran's state television said last week that Iran central bank began the process to reduce its' euro reserves from 55% to 20-25% and convert them to dollars and gold. Evidently, the first stage of these sales has started. It involves selling 15 billion euros and is expected to be completed by September 22. The whole sales would amount to EUR 45 billion. Iran is expected to substantially decrease its oil sales in euros.

In an article published on on June 02, 2010, the South African Chamber of Mines reported the country's first quarter gold production fell 15% quarter-on-quarter, extending the downward slide in output. South Africa has fallen quickly from the top of the perch as the world's largest gold producer. It is now behind China, the United States and Australia. Its mines are becoming deeper and more expensive to mine and grades, which is the measurement of the amount of gold in each ton of ore hauled to the surface for treatment, is dropping.

In the meantime, investors continue to accumulate gold and the gold holdings in the gold exchange traded fund in the US increase sharply. On June 2, 2010 the total holdings of the (GLD) USA were 40,784,789 ounces and the next day it had jumped to 41,469,622; an increase of some 684,833 ounces or approximately 21 tons in a single day. This is not bad when you consider that the total holdings of this fund were only 260,000 ounces when it began trading in 2004.

About the author

David Levenstein is a leading expert on investing in precious metals .He brings over 30 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 SABC 3, 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.