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Is The Troubled Euro Affecting Gold?

After more than ten years, the yellow metal is slowing losing its shine. Many investors are now debating whether the Bull Run in this precious metal is finally nearing its end. The prices of this metal have witnessed numerous corrections and many people are asking is the troubled Euro affecting gold.


Normally, a crisis similar to the Euro zone would result in the increasing demand for the yellow metal. However, many analysts are advising investors to sell their investments in this precious metal and divert their funds in to the US dollar. After the 2008 financial crisis when the United States began pumping liquidity into the banking system, the yellow metal was considered safer, which is now beginning to change.


The fear of reducing prices of the precious metal is a result of investors considering European states, such as Spain, Greece, and Portugal to begin selling their reserves of the yellow metal. Portugal reserves account for 382.5 tons, Greece has 111.5 tons of gold reserves, and Spain gold reserves amount to 281.6 tons. Moreover, numerous European banks have significantly large reserves of the precious metal, which is against their agreement of reducing such reserves from their total foreign exchange reserves.


A second reason for the metal losing its luster is the investors selling their investments in exchange traded funds and other similar products. Totaling to 2400 tons, such sales have provided some sort of resilience to the crisis affecting this precious metal. However, with the prices facing considerable downside risks, this sentiment could soon turn negative further affecting the prices.


Since September 2011 when the prices of this precious metal were at its high of $1900 per ounce, currently it has fallen down by almost seventeen percent. Moreover, silver prices have also seen a reduction of forty percent from the price in April 2011. Even the present fiscal has witnessed a decline of five percent in the prices of yellow metal and eleven percent in the prices of silver.


In addition, most of the analysts have commenced providing a bearish outlook for the price of bullion especially during the short term. Recently, the egregious failure of JPMorgan CIO's strategy that resulted in $2 billion loss reduced the price of the yellow metal. Moreover, many people consider this instance taking more serious turn especially in the light that there may be more than is being revealed by the company.


Generally, when the market is aware that an entity has made an inaccurate bet, the players often place the opposite bets. This further escalates the problem for the troubled entity making it more difficult for the company to overcome its crisis. This can result in further financial market crisis thus tempting investors to liquidate their investments in gold.


Historically, the dollar and gold has always moved in opposite directions, which mean the price of the yellow metal rises when dollar declines and vice versa. During the last two weeks the dollar has risen with the dollar index going up. In addition, if the political situation in the European countries does not improve, the Euro may decline, and is the troubled Euro affecting gold becoming a reality!!

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