Álvarez, 26, joined Atletico Madrid from Manchester City in 2024 for up to £81.5 million and has scored 48 goals in 104 appearances for the club, establishing himself as one of Europe's most complete forwards.
He has four years remaining on his contract at the Metropolitano. Arsenal have long been linked and are understood to have weighed up a move last summer before signing Viktor Gyökeres instead.
Asked before Wednesday's Champions League semi-final first leg whether Álvarez is looking to leave, Simeone was characteristically direct.
"I'm not inside Julián Álvarez's head. I understand it's normal that an extraordinary player like Julián Álvarez is wanted by Arsenal, Paris Saint-Germain, Barcelona. It's normal because he's very good."
Álvarez himself has tried to draw a line under the speculation.
"I try not to give too much importance to what they say, because the truth is that every week new things come out, all kinds of new information. I try not to waste energy on that and to focus on what we're doing here at Atleti. It often starts becoming a snowball of lies. I can't keep going out to clarify or deny everything that comes out all the time."
His agent Fernando Hidalgo has separately denied reports of Barcelona interest, calling them "1000 per cent false."
Arsenal face Atlético in the Champions League semi-final first leg on Wednesday. Mikel Arteta is expected to be without Gabriel Magalhães, who picked up a hamstring injury against Newcastle at the weekend.