Montreal, Canada

The summer is typically a bad time to ride most commodities – including gold. Some of the most violent declines in world markets have occurred from May to August combined with massive market dislocations ranging from the Asian credit crisis, Russian GKO default, the NASDAQ blow-up, Enron scandal and, most recently, the global credit crisis.

When markets are thinly traded, bad things usually happen. This is one of the reasons why I remain cautious on stocks even though the Dow Industrials and the Dow Transports surpassed important near-term resistance levels yesterday; the move was accompanied by a meager 4.1 billion shares – a pathetically weak showing in a rising market. All along, stocks have attracted low trading volumes, also a bearish sign.

Back to the point about gold: Since hitting an all-time high in June at $1,266 an ounce, the August contract has declined a cumulative 6.2% as of this morning. That's not a big pullback by any means; but when expressed in foreign currency terms, this ranks as a correction. The EUR, which has rallied from 1.22 on June 30 (low of 1.1875 in late June) to 1.30 now, has risen a cumulative 15% against gold this month after hitting new lows for months.

The U.S. dollar and gold, however, are now buddies since the emergence of the Greek sovereign debt crisis because traders have flocked into gold as a means to hedge against the EUR – until this month. The dollar has also been a safe-haven recipient from nervous money. Yet we now see a major divergence in the relationship between gold and the EUR whereby on any given day the European single currency rallies, gold prices usually decline. I fear the EUR is now heading higher as it strives for 1.325 and possibly, beyond.

But after August, I expect the European debt crisis to re-emerge and show its ugly head. It's inconsistent to have a strong EUR accompanied by rising austerity measures in most eurozone countries coupled by rising unemployment and softening GDP growth. The EUR is still not out of the woods.

The European bank stress tests were a total joke and smart investors know this. European banks need capital. Amazing how most Greek banks even passed this stupid stress test – the whole system is rigged. Gold knows this. We know this. Use any intermittent weakness in the gold price to buy or accumulate more bullion this summer and fall.