Daily Noise in Gold and the Euro

By: Adrian Ash | Wed, Feb 3, 2010
Print Email

Five stars, one Dollar exchange rate, and a 51% gain in gold...

"GOLD RETREATS as Dollar gains," says a headline from Dow Jones Newswire.

Which makes sense. Because when that isn't happening, "Gold adds to gains as Dollar falls versus Euro," says Reuters.

Thus the intuitive Dollar-gold pairing swings now one way or other in the financial pages...gaining here, falling there...but always joined together as the journalist's deadline is heard hurrying near.

The "whys" and the "wherefores" of a quick market comment demand it as well. Ask a professional analyst for a 10 or 15-word soundbite, and they'll most often tell you, if not vice versa, that "The Dollar is stronger, keeping precious metals under pressure."

Beyond the daily noise, however - and with the single currency unwinding its last eight months' action vs. the Dollar at the end of last week - gold has in fact moved up against both.

You wouldn't know it from scanning the newswires. But since the Euro last crossed through $1.40 - the level it just slipped through once more - gold has risen 22% for US investors. And of course, it's risen by precisely that same percentage for German, French and Italian buyers too.

Because with the EUR/USD cross unchanged since May 2009, the rise in the gold price shows equally on both sides of the pairing.

Indeed, at that $1.40 level - now the Euro's average value since Sept. 2006 - gold has risen time and again...adding 51% for investors both in the States and in Europe from the first crossing of $1.40 in Sept. '07.

Yes, a daily rise in the Euro typically means the Dollar-gold price is up. On a daily basis, their average one-month correlation is now +0.51 since the single currency's launch. That's stronger than gold's correlation with any other asset bar silver.

But it would stand at +1.0 if they moved entirely in lock-step. And as the waxing and waning mapped in the chart above shows, the Dollar's demise hit the currency buffers back in summer '08.

Priced in gold, on the other hand, the greenback has continued to fall. As has the Euro.

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council (www.gold.org) joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit http://www.bullionvault.com

© BullionVault 2006-2014

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events - and must be verified elsewhere - should you choose to act on it.

</body>
All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/