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Gold Reacts to Strong Dollar

Gold Dips Awaiting Major Eurozone Moves

Written by Brian Hicks
Posted July 24, 2012

A rising dollar saw gold prices drop to $1569 an ounce in London trading on Monday, as the Euro slumped to a two-year record low, below $1.21, against the dollar.

In Monday morning trading, the Euro Stoxx 50 index, which mainly counts blue chip companies, was down by 2.5 percent before lunchtime, while Spain’s Ibex lost 5.3 percent. The European economic turbulence remains the major reason behind gold fluctuations.

Spain, notably, is making waves after Valencia and Murcia initiated bailout request proceedings.

The news caused 10-year Spanish government bonds to shoot above 7.5 percent, a historic high.

And today officials will investigate Greece's progress with its bailout plan. Philipp Roesler, German vice chancellor, doesn't think there should be concern that Greece will exit the eurozone even if it falls behind bailout requirements. But not everyone agrees.

BullionVault reports:

"There is no firewall around Greece," counters Paul Donovan, senior economist at UBS.

“Or, if there is, it is constructed of high quality, dry kindling wood doused in gasoline. If Greece goes other countries seem certain to leave...if politicians have lost a sense of terror over the prospect of a Greek exit it suggests that politicians have lost any comprehension of economic reality."

Over in the American domestic market, the speculative net long in gold saw a faint uptick, but the number of long and short positions fell overall, BullionVault reports.

The SPDR Gold Shares, the world’s largest gold exchange traded fund, saw more outflows Friday. As a result, gold bullion holdings decreased to 1254.6 tons.

Globally, gold ETFs dropped by 13.7 tons just last week; this is the largest one-week drop since March. The Shanghai ETF is also down by 30 percent less than the average.

India, which is a major player in the gold market, has not shown much improvement. Part of the reason is that investors simply aren’t moving much money. Given the turbulent market in just about every part of the world, investors are seeking safe refuges and hoarding cash rather than spending it on further investments.

As long as stability remains an overriding priority for investors worldwide, we’re unlikely to see any major shifts soon.

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