Gartman Sees Gold in Euros at Record as Currency Slides: Chart of the Day

Gold prices in euros will rise to a record as Europe’s sovereign-debt crisis erodes the appeal of the 17-nation currency and boosts demand for the precious metal as an alternative asset, according to economist Dennis Gartman.

The CHART OF THE DAY shows gold has had an inverse relationship to the euro during the past week, as the metal jumped 3.8 percent and the currency slid 2.6 percent. The euro, which has declined in three of the last four months, may fall below $1.30 from about $1.38 yesterday, Gartman said.

“The driving force in the gold market is the problems in the euro,” Gartman said in a telephone interview from Suffolk, Virginia, where he publishes his Gartman Letter. “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

The European Central Bank unexpectedly cut interest rates yesterday amid concern that the continent’s economic slowdown is deepening and that Greece will exit the trade bloc in a dispute over a bailout plan. Gold has rallied 34 percent in euros during the past year as investors shunned equities and some currencies. Prices slumped 4.5 percent in September as investors sold the metal to cover losses in other markets. The commodity rebounded with a 2 percent gain last month.

“Gold is a currency,” Gartman said. The metal rose to a record 1,374.76 euros an ounce on Sept. 12, while gold futures in the Comex in New York touched an all-time high of $1,923.70 on Sept. 6, and closed yesterday at $1,765.10.

Hedge funds and other speculators increased their bets on higher prices by 8.7 percent to 138,846 futures and options in the week ended Oct. 25, U.S. Commodity Futures Trading Commission data show. It was the biggest gain in almost three months.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

5:46

Nov. 3 (Bloomberg) -- James Rickards, senior managing director of Tangent Capital Partners, and Douglas Borthwick, managing director and head of FX trading at Faros Trading, talk about the U.S dollar and Treasuries, China's economy and the potential for intervention by the Chinese government in the European sovereign-debt crisis. He speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

9:27

Nov. 3 (Bloomberg) -- Axel Merk, president and chief investment officer of Merk Investments, talks about his investment strategy for currencies. Merk also discusses Federal Reserve monetary policy and Greek Prime Minister George Papandreou's call for a referendum on whether the nation should remain in the European Union and receive billions of euros in aid. Merk speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." John Ryding, chief economist at RDQ Economics, also speaks. (Source: Bloomberg)