Gold Bullion Is Rising in All Currencies

I argued the bull case for gold in my posts over the past few months (see “Gold bullion - regaining its shine?“, “Gold bullion glitters bright” and “Gold bullion - challenging $1,000“. With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as if renewed interest in the yellow metal is being stirred up, especially subsequent to the purchase by India’s central bank of 200 metric tons of gold from the International Monetary Fund.

As printing presses are running at full speed to produce ever-increasing quantities of fiat money as governments engineer the greatest asset price reflation in human history - and the U.S. greenback is heading South - the longer-term fundamental case for the yellow metal is arguably positive.

The gold bug has caught several big hedge fund managers this year including John Paulson of Paulson & Company, Kyle Bass of Hayman Advisors and David Einhorn of Greenlight Capital, who believe enormous monetary and fiscal stimulus that has been injected into the global economy will eventually result in hyperinflation,

said The New York Times.

The gold price is not only making headway in U.S. dollar terms, but also in most major (and minor) currencies as illustrated by the table and graph below. This is a manifestation of increased investment demand, whereas the initial rise in the gold price from its low in 2001 ($250) was mostly a reflection of U.S. dollar weakness.

Click to enlarge:

Illustrating the message even more vividly, is the chart below of gold expressed in a basket of emerging-market currencies by dividing the dollar bullion price by the Wisdom Tree Dreyfus Emerging Currency ETF (CEW).

Click to enlarge:

Source: StockCharts.com

The shorter-term technical picture is also looking interesting. This is explained by Adam Hewison of INO.com who prepared a short technical analysis of gold’s most likely direction and key chart levels. Click here to access the video presentation.

Seasonally, the period from November to December has traditional been good for gold, with average gains ranging from more than 1% to almost 2.5% since 1970.

Click to enlarge:

Source: Plexus Asset Management

I remain bullish on gold in the medium term, especially as I believe the vast money printing by central banks could set off strong inflation pressures down the road. I will not be surprised to see bullion remaining in a secular uptrend in the medium term. Add bullion to your portfolios, but given the notorious volatility of the metal only do so on pullbacks.

Disclosure: The author holds investments in gold bullion

Comments

[pdtor:]

Good advice, but gold stocks are doing better than bullion. What will gold finally do when inflation really rears it's ugly head. This is just a preview of what is to come..................... fiirst we must deal with this defationary enviroment.

Helicopter Ben has lived up to his name

Nov 05 05:09 PM

[Laurence Hunt:]

A great synopsis.

Thank you M. du Plessis!

Nov 05 10:12 PM

[Genesis:]

Gold is rising in all major currencies, but has only made new highs in the USD. I think it is misleading if we fail to take note of this important fact.

Nov 06 02:54 AM

[HATEFEEBAY:]

Damn the Obama administration and ALL the idiots in congress... They cannot run anything, yet they want to do our healthcare? HA

Nov 06 09:19 AM

[Vuke:]

Gold has been a secure store of value throughout recorded history with the exception of the last two decades of the 20th century. During this period central bankers successfully persuaded the saving public to hold their wealth in paper.

Their arguments are now seen to be hollow as CB's are being forced to create more and more paper to prevent natural reactions to misallocation of capital. These efforts, alone, will be sufficient to drive gold even higher but more significantly, return gold to its natural role, that being the ultimate assurance of payment in honest money.

Nov 06 09:31 AM

[petersl:]

Prieur du Plessis has again demonstrated his intellectual acumen, supporting his statement with sound reasoning. I have been a gold and silver investor (mostly mining stocks, but some physical metal, and ETF's for 5 years). Suffice it to say, that I have been pleased with the results.

All currencies are depreciating against the price of gold now. The old arguments that in a deflationary environment, gold suffers, are being retested as being fallacious in the light of the historical record. During the Great Depression of the 1930's, gold prices increased, not decreased, though the government saw fit to deprive most Americans of the opportunity of enjoying that investment class.

Nov 06 10:52 AM

[anarchist:]

Yeah, health care is doing so well with out them-NOT!


On Nov 06 09:19 AM HATEFEEBAY wrote:

> Damn the Obama administration and ALL the idiots in congress...
> They cannot run anything, yet they want to do our healthcare? HA

Nov 06 01:31 PM

[thopaine:]

I wish the government would get out of health care by closing down Bethesda Naval Hospital and Walter Reed Army Hospital where all the congress people and family enjoy world class government pampering.
So happy they do not want to share this with the rest of us and thus spare us the agony of government run health care!

Nov 06 01:43 PM

[chap08:]

Please. If you think we've been in a deflationary environment in 09 then you don't know what's going on. Do emerging markets, industrial metals and oil also go up in a deflationary environment? No, they don't, but they seem to have been going up plenty (doubling) in 09. Also, check your history. The gold price only went up in the 30s because the government decided it should.


On Nov 06 10:52 AM petersl wrote:

> Prieur du Plessis has again demonstrated his intellectual acumen,
> supporting his statement with sound reasoning. I have been a gold
> and silver investor (mostly mining stocks, but some physical metal,
> and ETF's for 5 years). Suffice it to say, that I have been pleased
> with the results.
>
> All currencies are depreciating against the price of gold now. The
> old arguments that in a deflationary environment, gold suffers, are
> being retested as being fallacious in the light of the historical
> record. During the Great Depression of the 1930's, gold prices increased,
> not decreased, though the government saw fit to deprive most Americans
> of the opportunity of enjoying that investment class.

Nov 06 02:04 PM

[GotLife:]

These are questions, not rhetorical comments. Doesn't a rise in the price of gold against all currencies indicate a bubble? Will it protect erosion in your currency if all currencies are eroding simultaneously? If only individuals or countries holding gold truly have real wealth, how will business be conducted when 95% of the world holds zero gold, hence zero wealth?

Nov 06 03:39 PM

[Tetrapod:]

GotLife,
Good questions. Here are my answers for what it's worth:

1) No. Not at all. It means that confidence in all fiat currencies is eroding. That is reasonable and expected, as almost all central banks have been increasing liquidity (i.e. diluting the currency) to avoid deflationary forces. It is possible for all currencies to weaken (as today) or strengthen at the same time, and that can only be seen by looking at currencies versus hard assets (e.g. gold, copper, oil, etc.). Gold is probably the most stable asset since the supply can only increase at a slow steady rate due to its scarcity and cost of recovery, and its demand is mostly reflective of its monetary value, as very little is consumed. This makes it, probably, the purest monetary commodity.

2) Gold is only one form of wealth. Perhaps it is the best "zero" against which all other wealth can be measured, but regardless, all assets represent "real" wealth -- commodities, real estate, equities, even fiat currencies. The only question is which form will best retain or increase its value, and which will evaporate. Fiat currencies tend to evaporate over time by losing their value, because the temptation for governments to inflate seems too much to resist. This is not a modern phenomenon, but has happened throughout history whenever a currency becomes independent of a hard asset such as gold.





On Nov 06 03:39 PM GotLife wrote:

> These are questions, not rhetorical comments. Doesn't a rise in the
> price of gold against all currencies indicate a bubble? Will it protect
> erosion in your currency if all currencies are eroding simultaneously?
> If only individuals or countries holding gold truly have real wealth,
> how will business be conducted when 95% of the world holds zero gold,
> hence zero wealth?

Nov 06 05:19 PM

[Northern Da...:]

Today, one ounce of gold will buy a good quality gentleman's business suit. 400 years ago, it would do the same. In the time of the Romans, one ounce of gold would buy a good quality gentleman's business suit (of armor). Today, and for the past 2000 years or more, gold is and has been the only form of real money. People who deny that (like the FED for example) are simply not understanding the real nature of fiat currencies. In the FED's case, they fully understand. They're just liars about it, that's all.

In 1935 or thereabouts, the US dollar was worth 1/35th of an ounce of gold. A good quality businessman's suit cost $35.

In the year 2000 it was worth 1/250th of an ounce and strangely enough, a gentleman's suit cost $250.

Today, the US dollar is worth 1/1100th of an ounce of gold. By now I don't think I need to quote the price of a man's suit at today's prices.

The sooner the masses get their heads around this reality, the sooner the destructive and thieving nature of the FED will be realized. And hopefully, the sooner will be the demise of that demonic institution. An American central bank, if owned by the American people instead of some foreign offshore banking cartel would absolutely work miracles for not only the United States of America, but for the entire world. What are ya waitin' for?

Nov 07 05:24 PM

[Philly Jim:]

Inflation is already here. I'm not sure exactly who is collecting the numbers for compiling of statistics in the U.S., but they surely aren't doing their jobs; that, or the numbers are being manipulated. I see inflation everywhere I shop. Items which once cost say $150.00, are now $215.00 - a nice jump in two years. It's my theory that the inflation numbers are being withheld in order to maintain low interest rates for borrowers in an extremely uncertain economic atmosphere. I wish these governments would let the market take over -- clear out the weak and let the strong come in and profit from it, and business will go about as usual. As long as this global economy is held up by paper pillars, gold will shine.

Nov 08 07:29 AM

[yellowhoard:]

Healthcare legislation isn't about helping people get healthcare.

It's about controlling a trillion dollar cookie jar and rationing healthcare to the surplus population.


On Nov 06 09:19 AM HATEFEEBAY wrote:

> Damn the Obama administration and ALL the idiots in congress...
> They cannot run anything, yet they want to do our healthcare? HA

Nov 08 08:43 AM

[ETFdesk.com:]

interesting follow up read on Gold from FT: Gold - a six thousand year-old bubble bit.ly/1j3mtj

Nov 09 03:32 PM