Let's update an analysis from last October on gold and its relationship to the euro, and expand on a Columnist Conversation exchange from last week. Gold's fundamentals are surprisingly simple. We should expect it to rise in price under one of two conditions: The expected rate of inflation is greater than the expected short-term interest rate cost of holding it. If these expectations are realized, the nominal price of gold will rise by an amount greater than the forgone interest income. The currency in which the gold is priced weakens. If each dollar becomes worth less, it will take more of them to claim a given quantity of gold, and the nominal price will rise. That is it; too many people start howling at the moon and engaging in various forms of religious mysticism when they're talking about gold. Neither fundamental is supportive of higher gold prices at present, yet gold prices are rising nevertheless. If we compare my annualized inflation gauge (AIG, no relation to the insurer) -- the spread between the rate of inflation implied by the TIPS market less the annualized three-month repo rate -- with the price of gold, we see that this measure has been decidedly unfriendly to the gold market since the start of 2005. POSTED PICTURE THAT GOES WITH THIS POINT IN ALBUM