Phil Flynn: The Great European Gold Rush

The global oil market is trying once again to find value in a global economy gone mad. The near trillion dollar effort to save the euro from a debt laden collapse has crude oil still trying to adjust to this latest chapter in the global economic crisis. Oh sure, earlier in this crisis it was much easier for oil to find its way. The United States having a fed funds target rate of near zero and was buying back toxic assets and so it was clearer. The Fed was printing money like it was going out of style and the EU was not supposed to do the same. So it was clear what to do, buy oil, sell the dollar and buy the Euro. Oil moved inverse to the dollar. The EU you see was not allowed to buy toxic assets. Oh sure, individual countries within the union could buy all the garbage that they may have wanted.

But now the EU, with the backing of the IMF, moved to buy toxic assets and so the purity of the currency is being called into question. Within the EU citizens of the member countries are nervous. They are knocking people over to buy gold. You might say it is a European gold rush not unlike the gold rush we saw in this country post TARP and supplies in Europe are tightening as the fear quotient rises. This movement to hard assets and the Euro confidence flight means crude oil’s direct inverse relationship with the dollar is being re-calibrated as the crisis revolves.

As the depth of the Greece Crisis first started to become clear, we have seen Europeans move away from the Euro and buy into gold. The Wall Street Journal says that gold has been hitting records in euro terms since February. On Tuesday it reached €960.41 in London, a increase of more than 26% this year, more than twice the gains of gold in dollar terms. Last week with the Greece debt crisis threatening to bring down global stock markets, the gold buying became a European frenzy. Now in the aftermath of the bailout, gold has hit a record in dollar terms transcending even the US dollar as a safe haven play showing the growing concern that this bailout will save the paper backed global economy from eventual collapse.

Now oil traders are justifiably confused. When oil traders for over a year took their major cue from the movement in the dollar ignoring supply and demand statistics, this changing landscape led to more swings