Daily Gold Update

Source: Bloomberg.com

New York— Gold prices in New York rose for the first session in four, reversing earlier losses, as investors shifted holdings to the precious metal from euros after the currency hit a nine-month low against the dollar.

The dollar gained against the euro after the Commerce Department reported the U.S. trade gap in April widened to $57 billion, less than forecast by economists. The link between gold and the euro began to diminish last week after voters in France and the Netherlands rejected the European Union constitution. Gold gained 0.8 percent this week, and the euro has shed 0.9 percent.

“There is gold being bought in euro terms'' said Michael Guido, director of hedge fund marketing and commodity strategy in New York for Paris-based Societe Generale SA. “In essence, they're selling euros and buying gold. That's why you're seeing gold move up, while the euro's still down.''

Gold futures for August delivery rose $3.20, or 0.8 percent, to $429.30 an ounce on the Comex division of the New York Mercantile Exchange, gaining for the third straight week. Prices earlier today fell as much as $2. A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.

Gold, which has moved almost in lockstep with the euro's performance against the dollar in the past three months, at a correlation coefficient of 0.76. The maximum reading is 1. The coefficient measures to what degree two variables move in unison.

The correlation was 0.93 before voters in France and the Netherlands rejected the treaty meant to streamline decision-making following the union's expansion to 25 members from 15 last year.

“The euro has lost it, and you're seeing people who sold dollars and held euros in reserve buy gold,'' said Dennis Gartman, trader, economist and editor of the Suffolk, Virginia-based Gartman Letter, a financial newsletter.

Gartman began recommending that investors hold gold in euro terms on April 11, saying a rejection of the EU constitution would undermine the currency.

“Investors are probably a little disturbed about holding euros and uncomfortable holding U.S. denominated assets, so they look to the third alternative, which is gold,'' Gartman said.