Gold Falls Amid Worsening EU Situation

Gold retreated on a stronger dollar after worse-than-expected data from the Euro zone pressured the euro.

Data showed yesterday that the German ZEW index rose well below expectations, while the index of current conditions fell. Gold slipped further today after reports showed that Frances economy will enter a recession following a second quarterly economic slowdown of -0,2%. Unexpected news of a fall in Hollands GDP and increase of the unemployment rate further devalued the Euro, allowing the greenback to extend positions. The U.S. currency and gold tend to trade in an inverse relation. Strengthening of the greenback makes dollar-priced commodities more expensive for foreign currency holders and limits their appeal as an alternative investment.

Steve Scacalossi, a New York-based vice president at TD Securities Inc., said in a report: “The market is facing headwinds as global equities continue their path higher, taking institutional investment away from the gold market and central-bank stimulus is gradually withdrawn from the U.S. economy. Gold is going to struggle in this strong-dollar environment.”

Gold has fallen 19% this year after it tumbled into a bear market in April as investors lost faith in the metal as safe haven for wealth preservation and as equities rallied amid signs that the U.S. economy is consistently recovering.

San Francisco Fed President Williams said in a speech in Portland, Oregon: “It’s clear that the labor market has improved since September.”