TH: Gold and Strong Dollar Keeping Inflation Under Control
The bullish trading of gold has overshadowed the weakened euro. The main factor attributing to the bullion’s gains is the role of Greece’s financial burden on the European Union (EU).
“If Greece is becoming a concern again, people should be going to gold (as a haven), but the euro should be falling, which should be bad for gold," said Citigroup analyst David Thurtell in a Reuters report.
The pessimistic prediction of Greece not receiving financial assistance from the EU may see the country turning to the International Monetary Fund (IMF) in April for solutions. Greek Prime Minister George Papandreou told European lawmakers in Brussels on Thursday that the case for Athens meets IMF criteria for intervention.
Due to the greenback’s traditional inverse relationship with gold, investors have opted to treat these assets as haven investments. However, at the moment strong gold prices are moving in the same direction as the dollar, which gained up to 0.7 percent against the euro.
"We're seeing a movement to gold as a reserve currency," said Tom Hartmann, an analyst at AltaVest Worldwide Trading in Mission Viejo, California. "There's some mistrust and uncertainty about paper currencies.”
Gold futures for April delivery rose $3.30, or 0.3 percent, to $1,127.50 an ounce on the Comex in New York on Thursday, up for the fourth straight day.
Overall gold has risen 2.3 percent this week. The commodity is up 27 percent in the past year, and the dollar has dropped 5.2 percent on the ICE Futures U.S. Dollar Index, a leading benchmark for the U.S. dollar against the world’s most popular six currencies.
"Gold is quietly, at the edge, becoming the world's second reservable currency, supplanting the euro and rivaling the dollar," Dennis Gartman, a Suffolk, Virginia-based economist and hedge-fund manager, said in his Gartman Letter. "The trend shall continue months, if not years, into the future."
In the context of U.S. economic data, the Consumer Price Index indicates that inflation pressures are under control, with February’s number remaining unchanged from January which rose 0.2 percent. Excluding volatile energy and food prices, the closely watched core measure of consumer inflation inched up 0.1 percent after falling by the same amount in January.
Some analysts would argue that gold is the best precious metal candidate to hedge against inflation. Since there are currently no strong signs of inflationary threats, perhaps the high price of gold may be justified for 2010 and 2011.
