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The Euro Versus the USD and Gold Bullion

May 7, 2012 - Gold bullion has been suffering a drop off in demand that has mostly been fueled by anticipation of better economic conditions. The drop off in demand for gold is mainly a lack of panic buying and safe haven asset buying. Safe haven asset buying occurs when there is indication of major political instability that will affect financial markets. The elections of the past weekend in Greece and France have demonstrated a popular sentiment against the austerity measures of the European Monetary Union. The immediate drop in the Euro is a very good result of that sentiment and it is affecting the price of gold bullion.

We have seen panic buying and safe haven asset buying on a scale not seen in multiple decades during the past two years. The financial crisis in the United States began a major trend of hedging against personal risk, but after the bailouts beginning in 2008, financial problems in other countries have been the major panic button for gold buyers seeking a safe haven in the global financial storm.

It is this safe haven asset buying and panic buying in gold that has partially helped to propel the price to an all-time nominal high in the past nine months. This all-time high coincided with the Greek bailout crisis, specifically the time when no one was sure the country wouldn’t default.

The austerity measures put in place to ensure the avoidance of that default are vastly unpopular. The recent elections in both France and Greece demonstrate that dynamic very well. The public is growing increasingly anti-austerity and anti-bailout and this weekend the French voted the President and the Greeks gave less than a third of the popular vote to the party responsible for the bailouts.

Immediately in currency trading, the Euro fell 45 pips against the dollar, which is extremely significant in terms of a starting session. This is an indication as to how financial markets are responding to the political changes occurring in Europe.

With the Euro falling so far on political change, the dollar is strengthened in currency markets and is thus bringing down the relative price of gold. Gold priced in a relatively stronger dollar will balance, however. We can anticipate the rebalancing as well as increased demand in gold bullion.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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