Traders have been watching the euro and the dollar prop each other up like a pair of invalids for months now. A lower dollar revives interest in the euro project - each sign of Euroland sickness boosts the dollar for one more week.
Gold commentators are starting to see investors leave both currencies and move into gold, but there is no doubt that the view - reasonable to gold bugs - that gold is a natural "third currency," is still very much a minority opinion among central bankers and market funds: and these folk are the real wall of cash that gold buyers hope to see on their side some day soon.
It is worth looking again at what the euro is trying to achieve, however dull it sounds, so as to understand why and how it is failing. The dollar is a simpler case - the world's biggest and most advanced economy happens to have overspent a success story. With greenbacks, at first glance, it looks as if there are just two questions to balance.
1. Is US debt so huge that a reckoning is inevitable sooner or later?
2. Is the US so resilient, so economically and technologically vibrant that each big devaluation will only sharpen its lead on the rest of the world and revive the giant from its bout of temporary indigestion?
The story with the euro is fiddlier. 1. Its founders hoped to use market convergence (prices moving closer to each other in different countries once the same goods are priced in one money) to bond the separate economies of Europe into one. 2. They also hoped to convince the world of the EU's oneness and bigness by creating a single currency to loom large on the forex markets. In order to achieve these two, EU leaders 3. subjected different economies to different pressures (such as higher interest rates in the countries like France and Italy with currencies softer than Germany's) to squeeze them all into roughly the same shape to become the euro.
The first process is still underway, and may continue to be underway for a very long time. The second, oddly, has largely succeeded, but because of the cost exacted by the third, this gain has been in vain. Yet Europe got what it wanted. Amusingly, just as the US dollar became very unwell, the EU managed to create a rival dollar, right down to creating one as sick as the American version.
Both sides of the Atlantic now have an overvalued currency, but for opposite reasons. The Americans have a fantastically successful economy - so successful that they massively overspent and overborrowed their money. The US used their successful economic expansion to justify expanding their currency even faster. Europeans went the other way. Seeking to be super-prudent, the Europeans managed to create a hard currency, hard enough to stifle their already quite slow-moving economies.
So US currency growth follows real economic growth, but overdoes it. While Europe's real economic contraction follows currency contraction, and has overdone that. The two sides of the pond are temperamentally different. If you are worried by excessive debt, the US overhang will concern you more. If you are worried by lack of real growth, Euroland will seem more disturbing.
Which is ironic, since Europe has a lot more Keynesians yet Europe is now a Keynesian nightmare - fiscal tightness depressing the real economy. While the US, land of Friedman and monetarist orthodoxy, has created a monetarist scare story - an inflated money out of touch with its underlying economy.
Meanwhile, countries which thrive by selling cheap imports into America (such as China) hold enough US debt to push the dollar down if they wanted to, but have a lot of exports to lose by doing so. In fact, they're doing their best to use that leverage to hold the dollar up.
Europeans might seem prime candidates to buy gold, except that their perspective is not a gold-friendly one. From the point of view of French - or even some Dutch - voters, their governments are doing something wrong, but they don't want them to do less. They don't think the euro is about to vanish or shrink, though they know they were cheated in the changeover months (for example Germans belatedly realised that many high-street prices had simply switched from being numbered in DEM to something slightly smaller in euro, almost doubling in the process).
It is important to realise that most Europeans are not asking for more freedom from government regulation. They want more government regulation, not less. More government-created jobs, more restrictions on firms that want to lay people off, more trade protectionism. They expect the euro to stay roughly where it is because they believe lots of government is a good thing - they just want government to somehow conjure up more growth alongside their other demands.
After all, if Europeans understood economics, they would never have created the euro in the first place. So something as daring as buying gold is unlikely to suddenly catch on in Europe. If it does, the EU will ban it, and European gold-buyers will - by and large - do as they're told.
In contrast, Americans have the feeling that they are rich, yet have an official money that is about to become worth a lot less. So Americans are much more likely to see buying gold as a smart move. Yet, oddly, the cliff Americans fear or hope the US dollar could fall off will probably turn out to be a gentle downward slope, since China and India and the oil states have no intention of letting a sudden US dollar devaluation both reduce their foreign reserves and make their exports to America suddenly expensive. In terms of economic ideology, Franco-German Eurobuilders and the Peoples' Republic of China are not that far apart. Both groups believe now in free-market capitalism, but only with a strong political hand at the tiller. Both have reluctantly come to see businessmen as necessary, but nonetheless fundamentally vulgar and rowdy, and best kept within strict bounds.
While France and Germany, as much as they can, choke their economies to keep them in line with their currency, China, as much as it can, is propping up the US currency to keep it in line with the US economy. The European elites don't want (and can't really allow, for fear of losing votes) Europe's economies to grow to meet their currency.
America's foreign-debt holders don't want (and can't really allow, for fear of losing exports) America's currency to shrink to meet its economy.
This means gold speculators might do well to forget hopes of a cliff-like drop for USD, with sudden gains for gold-holders the other side. Gold appreciation is unlikely to come like a tsunami - it will instead be steady, insidious, like slowly rising floodwater forcing the family up to the first floor, then the second floor, then the roof.
Since the dollar-euro rate has a feeble currency at each end, mainstream big-currency-fixated commentators will be slow to notice this rising water level unless, like gold bugs, they watch commodity markets separately from forex. Oil is at 60 a barrel, and a return to 40 a barrel - until recently seen as impossibly high - would now be called a huge fall, though it must nevertheless retrace some of that soon.
Short-term, a sudden move out of oil is the most likely chunk of cash to shift into gold, so watch for the drop in oil. Long-term, the upward path for precious metals might well be slow, with lots of retracements, and shallow. Yet still upward.
Part 2 will say more about why European bankers and individuals are not going to stampede into gold - at least not just yet.
Mark Griffith has a BA in Economics and Philosophy from Cambridge University, England; has traded in the open-outcry futures and options pits of LIFFE, London; has been published by Forbes Magazine, Financial Times newsletters, Playboy Russia, and American Spectator.
He writes about commodity markets and finance, and is researching a book about how firms can profit from virtual currencies. He can be contacted at email@example.com.