Keeping the golden faith

As was to be expected, the euro has been hit hard by the results of the French referendum, dropping form around 1.26 US$/EUR to 1.23 in two days. This is likely a knee-jerk reaction, but it’s part of a trend that has been running this year (the US$/EUR rate at the end of last year was 1.36). Obviously, the euro zone’s dismal growth performance, which has driven long term rates to around 3.3%, is the main culprit.

This will cause a lot of pain to that most unusual, even cultish group: gold bugs. The price of gold is negatively correlated to the dollar’s value, so its current strength against the euro (and other currencies) has made it –one of the best investments in the past four years—lose its shine. Its price has fallen 6% this year and 4% over the last 30 days.

However, no matter what trials the markets bring, this group is steadfast in its faith: they, along with many others, including Warren Buffet, still see only damnation for the dollar in the long term (see this example).