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.