Hi Coswil,

the reason for the recent rally against the euro and the British pound is no hocus pocus but in fact plain simple:

The European Central Bank (ECB) decided today, as was predicted, not to change (=raise) the current intrest rate of 4.25 pct. As you know, the ECB has a different approach in dealing with inflation and economic activity than the Federal Reserve.

What does this mean:

America: low interest (+/- 2 pct) favours economic growth but a possible inflation swing out the pan.

Europe: high interest (4.25 pct) fights inflation but declines economic activity.

Today, by its spokesman president Jean Claude Trichet, the ECB hinted at problems in the European economy. Inflation seems to be getting under control by now, and the ECB is expected to lower the interest rate by the end of the year, giving some fresh air to economic activity. (Inflation declines because of the lower oil & commodity prices).

It means that by a possible lowering of european intrest rates the dollar is about to strenghten more versus the euro in the coming months. This and the general European prediction that oil prices will steadily fall back to and stay at 100 dollars/barrel.

We all know what this means: a strong dollar = lower gold price.

Hope this clarifies a bit the recent European market sentiment. helium