Despite the worst sentiment towards gold we have seen since the brief 30% price fall in 2008, gold continues to eke out gains in all major currencies. So far in 2014, gold is 14.3%, 12.3%, 5.8% and 0.4% higher in japanese yen, euros, sterling and dollars respectively.
Gold is again acting as a hedge against currency weakness and the ongoing devaluation of currencies as stealth currency wars continue. Overnight, gold rose to over EUR 986/oz and looks set to challenge the significant and important level of resistance that is EUR 1,000/oz due to euro weakness and concerns that Draghi may launch the ECB money printing ‘Bazooka’ in 2015.
There is a perception that gold has performed badly recently and in 2014 due to the recent dip in gold prices in dollar terms and despite the fact that gold is actually higher even in dollar terms in 2014.
This focus on gold solely in dollar terms is misleading. It shows a peculiarly dollar centric way of looking at the world. It is important for investors in the UK, EU, Japan and elsewhere to always consider performance in local currency terms.
Gold is not “priced in dollars” solely as is frequently, simplistically asserted.
Rather the COMEX price of gold in dollars is a leading benchmark price and is one of the most commonly quoted prices of gold in the world. Traders and speculators tend to speculate on gold in dollar terms.
However, investors internationally buy gold in their own currency. Investors in Switzerland and Germany buy gold in their banks and are quoted Swiss franc and euro prices and pay in Swiss francs and euros. Irish investors buying gold are quoted in euros and pay in euros. UK investors buying gold are quoted in sterling and pay in sterling.
Similarly, in the two largest gold buying markets in the world, India and China, gold is quoted in rupees and yuan and people buy gold in rupees and yuan respectively. In most countries throughout the world, investors are quoted in local currency terms and pay in local currency terms. Indeed, we allow people to pay us in any major currency, they wish to pay us in.