Is gold an attractive investment to rise in value against the dollar and other currencies?
*Financial Times, January 8, 2008:
Gold is the New Global Currency
"There was a time when gold was money. In today's uncertain world, the
yellow metal is back in fashion. Bullion prices rose to a record
nominal high after the assassination of Benazir Bhutto in Pakistan
added to nervousness about the world economy. Part of gold's allure is
its traditional status as a safe haven. It is seen as a store of value
when everything else seems risky. But the bigger drivers behind the
rising spot price are a depreciating dollar and the prospect of
negative US real interest rates.
A better way to think of gold may be as central bankers used to before
America dropped the gold standard: not as a commodity, but as another
currency. As long as the dollar stays weak, gold's bull run will last.
The arguments for further gains in the gold price are compelling. It
looks cheap, despite climbing from a low of about $250 a troy ounce in
1999, when central banks were selling reserves. The UK's decision back
then to sell 60 per cent of its official holdings looks particularly
poor judgment.
Prices have a long way to go before they approach the
inflation-adjusted record touched in 1980 when Soviet tanks invaded
Afghanistan. At yesterday's $859, gold was trading at less than half
that level. It could top $1,000 and still be at the lower end of what
some analysts argue is a safe haven range.
Gold is also benefiting from diversification away from equities.
Commodities have emerged as a distinct asset class, with billions of
dollars poured into exchange traded funds. Physical demand for
jewellery may have stalled in Asia, but consumption remains strong in
the Middle East. Declining output in South Africa will help support
spot prices.
But it is the relationship between the dollar and the reaction of the
world's central banks to the credit squeeze that some bulls would say
really makes gold an attractive bet.
The US Federal Reserve's aggressive, rate-cutting response to the
credit squeeze has created a risk of a sharp rise in American
inflation. That in turn creates the risk of a precipitous fall in the
dollar and so makes gold more attractive as a hedge.
The world's major economies have experienced rapid money supply growth
of 10 per cent plus per annum in recent years. The Fed remains the
world's biggest holder of gold, yet supplies of the metal are growing
at only 1.5 per cent a year. If gold is a finite currency, its value
against not just the dollar, but sterling and the euro too, should
rise."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
Call Now
Let us help you:
Personal Advisors
available now at
1-800-444-8317