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Dollar Down, Euro and Gold at Record Highs

Release Date: 
Friday, April 8, 2011

The dollar fell to its lowest level since December 2009 against the euro and six major currencies, causing gold prices to reach a new record high.  The metal traded at $1470.10 per ounce at 7:01 a.m. Pacific Time on the New York Spot Market.  The slide of the U.S. currency has helped gold reach a series of highs since January.  Analysts at Commerzbank, Standard Bank and Richcomm Global Services commented on several long-term support factors for gold prices in light of the extended price increase.

"Corrections from here are likely to be shallow, with fresh investment demand emerging on all dips. $1,500 an ounce is around the corner and may be hit in the next few sessions," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.      

"It is mainly the weaker U.S. dollar which is the driver today for gold prices…If the euro-dollar rate rises further, gold will follow suit," said Commerzbank analyst Carsten Fritsch.  “Inflation expectations are rising,” said Walter de Wet, an analyst at Standard Bank Plc in London. European debt issues are “certainly adding support. Most of the rally the past few days has been on the back of the dollar weakening.”

Additional support comes from violence across the Middle East and North Africa, which has pushed oil prices to multi-year highs and prompted safe haven purchasing of gold.  Analysts at Barclays Capital commented in a research note, “Gold continues to draw support from the ongoing geopolitical uncertainty ... dollar weakness, elevated oil prices, concerns over inflation and  .... Portugal’s request for financing from the European Union.” 

Japan’s earthquake and tsunami last month adds further economic uncertainty.  Only yesterday Japan’s biggest aftershock since the March 11 earthquake yesterday left two dead and millions without power in the areas hit hardest by last month’s tsunami. The magnitude 7.1 aftershock hindered efforts by Tokyo Electric Power Co. to prevent hydrogen explosions at its Fukushima Dai-Ichi nuclear plant which continues to struggle with radiation containment.

 

(Sources: “Gold Jumps to All-Time High on Concern About Inflation, Weakening Dollar,”

Bloomberg, April 8, 2011; “Gold Hits Record High as Dollar Slides,” CNBC, April 8, 2011; “PRECIOUS-Gold surges to record on euro, silver at $40,”Reuters, April 8, 2011; “Gold hits fresh record; silver tops $40 an ounce,” MarketWatch, April 8, 2011)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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