Gold's Big Countdown Vs. the Big Four Currencies

By: Adrian Ash | Mon, Oct 4, 2010
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Over the last four quarters, the stand-out losers against gold have been the world's top four reserve currencies...

The UPSHOT from last week's London Bullion Market Association conference in Berlin, at least for gold prices, was that there's more sound and fury about bullion in the financial pages than in the dealing rooms right now.

Several dealers I spoke to said business was quiet, if not boring. Gold's current rally, said one speaker, "punches above its weight in terms of significance." Another noted that at the start of September, when Dollar-gold surpassed its June high, volatility was at a 5-year low. (It still is. Silver price volatility has fallen to a 3-year low as it broke three-decade highs.)

You can see this lack of frenzy in prices alone, in fact - but only if you don't focus on the Dollar alone...

BullionVault's Global Gold Index shows the price of gold against the world's top 10 currencies, weighted by GDP.

Latest forecasts for economic growth from the IMF are applied for 2010, putting the US Dollar top, with the Euro next...then the Chinese Yuan...Japanese Yen...British Pound....Russian Rouble...Brazilian Real...Canadian Dollar...Indian Rupee...and Mexican Peso.

And just in case you were wondering, three points stand out from the last 3 months' action:

That third point is only to be expected, perhaps. Because the Dollar's decline made headlines across the summer/start of fall. But crunching the numbers further again, two truly remarkable points jump out from there...

#1. July-Sept this year was only the third quarter since the start of 2000 when the Dollar was the weakest major currency against gold. (The currency most commonly bottom-of-the-heap has been the Brazilian Real, but it's not been worst-in-show since 2005.) The USD was previously in the dog-house during Q4 2004 and Q3 2007 - periods when, just as over the last 3 months, US central-bank policy stood out as deliberately weakening the Dollar compared with its paper alternatives;

#2. Over the last four quarters (starting Oct. 2009), the stand-out losers against gold have been the world's top four reserve currencies:

Yes, the world's most reservable currencies have topped the bottom of the league-table against gold for the last four quarters running - and in reverse order of reservability, too!

Again, this countdown shouldn't surprise us, perhaps. Because while the US, Eurozone, UK and Japan now account for 97.9% of officially reported FX reserves worldwide, they've seen little reason not to abuse that demand, slashing interest rates further than any lesser currency-issuer could dare (0%, 1.0%, 0.5% and 0.1% respectively). And oddly enough, emerging-market central banks have been reducing the Big Four's weighting in their reported reserves right alongside, actually nudging it below the "advanced economies" weighting of USD, EUR, GBP and JPY since the start of last year.

Gold bullion, of course, pays nothing in interest. But that zero-yield is no longer a handicap against the world's most heavily-owned paper money. Little wonder it's getting a strong bid in the market, most of all against those same, heavily-owned paper currencies.

 


 

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

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