The euro sank today against the dollar, falling below $1.30 late last night and staying there all day. The political situation in Greece, with no one able yet to form a government, weighed on the euro. So did fears that Greece would just kiss the monetary union good-bye and default on its euro-denominated debt. Spain’s sale of 10-year bonds at more than 6% interest and its likely bailout of some of its largest banks added to the uncertainty.
As the dollar rises, the cost of a dollar-denominated gold futures contract gets more expensive. This tends to lead to a sell-off of gold and more buying interest in dollars. Gold’s value as a hedge against a falling dollar also declines in this market situation. Traders have also been betting on lower gold prices, which added to the drop.
Paul Ausick
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