Monday, October 25, 2010

Currency Wars Part VI

From the Forex Blog:

Currency War Devalues all Currencies…Except for Gold

Then there are those that believe all currencies will suffer, and that even the currencies that are still rising are actually depreciating in real terms (due to inflation). Those who harbor such beliefs will often try to short the entire currency market, usually by betting on commodities or heavy metals, of which Gold is probably the most prominent.

The price of Gold has risen more than 20% this year (in USD terms). Its backers claim that it is the ultimate store of value (where this derives from is unclear), and defend its lack of utility and inability to accrue interest by arguing that its appreciation is more than enough of a reason to own it. When you look at the performance of gold over the last five years, you begin to wonder if maybe they have a point.

I’m kinda busy this morning so I’ll forbear commenting on this issue…again. But I will add that the best academic guess for when the gold market will reverse is when interest rates start rising again in the developed world. Since the Fed is committed to keeping rates low “…for an extended period”, that might be 2-3 years down the road.

In the meantime, gold is likely to continue to increase in USD terms - $2000? $3000? Your guess is as good as mine. There’s certainly no other fundamental reason for buying gold.


  1. ahhhh forex lagi.....

    kinda brings me back to our first online exchange....

    u still travelling ke?

  2. No I'm sitting at PWTC attending the ETP book launch