Euro Continues Declining Trend
May 25, 2010 - The euro continues to decline since yesterday, dropping down once again to $1.22, from its high early today at 1,275. Against the yen, it declined by 2.4% to 109.29 yen.
Analysts attribute the fall on the ban imposed by Germany on naked short selling effective Wednesday 19 until March 31, 2011. Naked short selling was imposed on Germany’s 10 most important financial institutions.
Also, the sentiment toward the EU-IMP bailout package remained fragile. There are fears that the plan might inject liquidity into the region and put the euro at risk.
It was explained that the naked short selling ban was necessary because of the exceptional volatility” of euro-based bonds.
Analysts explained that in short selling investors borrow stocks with the aim of selling them and buying them back at a lower price for profit. In naked short selling, investors sell the stocks without borrowing them first.
The slump of the euro made an immediate impact on the prices of commodities. Demand for oil dropped because the weak euro and the strong dollar made the commodity which is priced in dollars more expensive to foreign investors.
A weak euro also drives investors towards gold. Peter Spina of Gold Seek LLC said that “as the euro weakens, investors are worried that there is no other place to put their money. The dollar has had its issues recently and the alternative has always been the euro. But now that the euro has been having its own problems where do you put the money?”
The prevailing uncertainties over the fiscal situation in the EU will be, according Bank of America-Merrill Lynch, beneficial to gold because of its negative effects on investors toward euro denominated assets.
“Hence, we reinforce our medium-term gold target of $1,500” the bank said.
Stewart Lawson
Senior Staff Writer - Gold-Coin.com
