Gold Prices Maintain Key Level

Gold prices have maintained a comfortable trading range over the important 350 euro per ounce level since the recent EU constitution votes in France and the Netherlands.

Clearly, euro holders have been buying and holding gold as a hedge against further declines in their currency which is currently trading at 9-month lows against the dollar.  Such behavior is significant in light of the fact that gold had been trading in tandem with the euro as an anti-dollar proxy prior to the EU constitution votes.

Many economists argue that historically high U.S. current account deficits and consumer debt levels will indeed matter at some point in the near future.  Morgan Stanley's chief economist Stephen Roach writes that a lopsided world economy must re-balance, and that a declining dollar and rising U.S. interest rates will be the result.

Dollar bears see the recent buying of gold by euro holders as foreshadowing of what will happen when the dollar resumes its multi-year decline against the world's other major currencies.  In their book, The Coming Collapse of the Dollar and How to Profit from It, James Turk and John Rubino detail how gold will re-emerge as the world's reserve currency once the dollar loses the confidence of central bankers.

Now that gold appears to be trading independently of the euro, perhaps the next chapter for gold is about to be written.