Yes, there is an urgent need for a general agreement on currencies. Until we get that, the extreme volatility will be worked by bankers and hedge funds until some of them collapse.

Currencies rise and fall on the basis of relative economic fundamentals. As some readers from Europe have mentioned in this blog's comment section, there is an economic renewal underway there.

Although I question the strength of the European economic renewal, the important focus should be on the relative performance with the U.S.

I believe that the U.S. housing market is a bigger component of the domestic economy than in Europe, and that the U.S. housing market is in serious trouble right now " more than politicians are saying or any home-owner would care to admit " and that will help Europe's economy on a relative basis.

But Europe's strength, as I see it, is in its manufacturing, which requires exports, which in turn requires stable currency rates. Should the Euro rally too far, exports would be negatively affected, which hurts employment, personal savings and spending, and so forth. So, European politicians would like to keep the lid on the Euro. The last thing they want to see is the $USD collapse.

To help their cause, the European central banks have agreed with Washington to sell high levels of gold, and as you have been reading, that has been happening.

But there will be times like all of 2005 and through the 1Q06 where the Euro weakened (the $USD strengthened) while Gold rallied strongly. So, while the stronger Euro is a help to a higher Gold price, I don't consider it to be the critical factor.

I simply believe that the Euro, like other currencies against the USD, will rise and fall on the basis of relative economic fundamentals. Presently, the trend is to a rapid decline in U.S. Industrial Production and overall GDP, and that is negative for the USD.

Have a look at the Russia Ruble against the USD in the past year, too. The Russian economy is alive with growth in many sectors, particularly but not exclusively natural resources. Russia still has a long way to go o catch up to the economic levels of Europe and North America, but it has, like the rest of Europe, a lot going for it. I'll write that up later.