Slower growth in Euro zone forcing ECB to start thinking about pausing now – what is the effect on gold, dollar, yen and euro?
Sam Adelton
Oct. 17, 2006

The growth in Euro zone is showing signs of stagnation. The European Central Bank is concerned. The unemployment rates in France, Germany and especially in Spain and Portugal was very high before the recent boom. The Euro zone economies are showing signs of genuine falter in growth. ECB has already decided internally that they will have to pause now.

The effect can be interesting for dollar, yen and euro. The effect can be especially unique for gold prices in months ahead. The pause in rate increase by ECB and the Fed is accompanied by a rate increase in Yen. Japan has a large trade surplus. In addition, Japan today is the main driving force behind Chinese manufacturing prosperity. American consumers actually are buying Chinese made goods with Japanese brand names.

Japanese economy seems to be leading the world now all on a sudden. As US and Euro zone is plagued with stagflation, Japanese economy has assumed the lead role in creating worldwide growth. Japanese companies are aggressively entering China and India to capture the billion-strength consumer there.

The slower growth in Europe and ECB’s decision to pause can hurt Euro badly. The US Dollar should perform better. The hot performer will be the Yen in the next few years.

Now comes the big question. What happens to gold?

If stagflation persist in US and Europe, Asian demand will pull gold up very slowly. But the wild card is deflation in US and Europe. Under deflation, gold will definitely lose ground. It seems Japan is leading the cycles of economies. They just went through the cycle of deflation. It may be the time for US and Europe. Rest of Asia will be after that.

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