Gold is approaching new highs!
Not in US dollars, mind you, but in terms of several other major global currencies, the price of gold is rising. If you live in the US, you may be asking, “Why should I care? I invest with US dollars.”
The value of fiat currencies is relative. Today the world’s least-weak currency is, by default, the strongest. In these times of global currency depreciation and anemic global growth, the fact that gold is strengthening should give you comfort. It means gold is functioning as it should, and as it always has.
History has shown repeatedly that when a nation suffers economic stress and currency devaluation, the price of gold rises when measured in the local currency. While residents are watching their wealth literally evaporate, owners of gold are watching their holdings appreciate—or at least preserve their wealth.
Today the euro, the yen, the Brazilian real, the ruble, and several other currencies are under pressure.
Let’s look at the peak gold price per ounce during the past five years, the price of gold at the start of 2014, and the price as of December 15, 2014.
| Five-Year | 1/3/2014 | 12/15/2014 | 2014 | | Currency | Peak | Date | Price | Price | % Change | | US Dollar | 1,884.20 | 9/2/11 | 1,238.00 | 1,193.50 | -3.7% | | Euro | 1,376.50 | 9/28/12 | 911.17 | 959.02 | 5.0% | | Brazilian Real | 3,648.57 | 11/30/12 | 2,941.49 | 3,205.92 | 8.2% | | Japanese Yen | 154,619.87 | 2/1/13 | 129,767.16 | 140,677.85 | 7.8% | | Russian Ruble | 78,648.67 | 12/15/14 | 41,095.41 | 78,648.67 | 47.7% |
The US is the world’s only major economy with momentum. As such, global wealth has been fleeing weaker currencies for safe havens, including gold and the dollar.
What would happen if the US dollar weakened? For one thing, foreign investors would sell their dollars, seeking shelter in more stable assets and economies. But today’s world is struggling to find growth and stability. “Stable” may be difficult to find if the US economy slows to match Europe and Japan. In such an event, few asset classes will be able to compare to the relative safety offered by gold.
We’re not fearmongers and we’re not making a prediction. But we are trying to make a point—buy insurance when it’s cheap. Just in case.
Thanks for reading,
Your Hard Assets Alliance team |
